Co-Ownership Agreements: "Till Dispute Do Us Part" #539
With the cost of properties continuing to rise in most parts of British Columbia, many people are looking to invest or acquire properties with others. While the co-ownership of property can have financial benefits at the outset, it can also come with a host of problems and disputes. Therefore, parties should consider entering into a co-ownership agreement setting out the rights and obligations of the parties, and mechanisms for resolving disputes.
Co-Ownership Agreements - The Basics
Co-ownership agreements should be negotiated and entered into prior to purchasing the property, or shortly thereafter to ensure everyone is in agreement before any potential disputes arise. Co-ownership agreements should contain provisions addressing the following basic items:
- how ownership of the property will be registered on title to the property;
- what percentage interest in the property each party holds;
- the initial capital contributions of each party;
- how mortgages will be handled and paid;
- how the property will be used, for example as a rental, for owners use, etc.;
- how will expenses be allocated between the parties;
- what happens if someone doesn't pay their portion of the expenses;
- what happens if a co-owner passes away, loses capacity, divorces, or becomes bankrupt;
- do co-owners have the right to purchase each other's interest, and if so, what are the mechanisms for this;
- what happens if a co-owner is in default of their obligations under the agreements;
- how are disputes going to be resolved; and
- when and how can the property be listed and sold.
In addition to the items noted above, co-ownership agreements may also address the renovation or redevelopment of the property, equalization payments if one co-owner has exclusive use of the property, responsibility for maintenance and landscaping, etc.
Partition of Property Act
In the absence of a co-ownership agreement, parties need to rely on the courts to resolve disputes, and often these disputes are addressed by one co-owner requesting the court-ordered sale of the property under the Partition of Property Act[i] (the "Act").
Section 6 of the Act allows any co-owners holding at least half of the interests in the property to request the court to order the sale of the property. Whereas section 8 of the Act allows for the other parties not requesting the court-ordered sale to undertake to purchase the interest in the property of the person requesting the sale from the court. If the undertaking is given by the other owners, then the court can order the valuation of the property and give direction on how the requesting owner's interest is to be sold to the other owner(s).
In Machin v Rathbone[ii], the court confirmed that where one party (or parties) who hold more than 50% of the interests in the property request the sale of the property under section 6 of the Act, and the other party requests the sale of the original applicant's interest in the property, section 6 will prevail, and the property will be listed for sale by court order,
"I find that s. 8(2) of the Partition of Property Act does not act so as to deprive an owner of at least one-half interest in land of the right to sell on the market that is conferred by s. 6. I find rather that the intent of s. 8(2) is to enable a majority owner to purchase the interest of a minority owner who has sought a forced sale under s. 6."
The court in Machin also confirmed that any of the co-owners could submit an offer to purchase the property once it was listed for sale. It is quite possible the litigation in Machin could have been avoided had the parties entered into a co-ownership agreement that provided clear mechanisms for how to deal with the property in the event of a dispute between the parties.
In Vetter v Bolivar[iii], the court confirmed that an application under the Act was not applicable as the co-ownership agreement entered into between the parties was valid and that the dispute between the co-owners could be addressed through arbitration as set out in the co-ownership agreement.
Co-ownership of properties is likely to increase in the future as the value of property continues to rise. It is very important for licensees to advise their clients to obtain legal advice regarding the co-ownership of property when multiple parties are involved in a purchase. Well drafted and thought-out co-ownership agreements can lower the potential for disputes, and provide co-owners with clear rights, obligations, and mechanisms for resolving disputes.
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