Purchasing a Property Under a Co-ownership Structure: A recently popular and crafty trend to enter into the unfavourable real estate market

By Mirjana (Mira) Markovic

The Royal LePage Real Estate Survey (August 2023)

In August, Royal LePage compiled a survey of more than 500 respondents which exhibited that Canadians are increasingly purchasing properties with family members, friends, business partners, and roommates in order to be able to afford a home and step onto the so-called “homeowner real estate ladder”. The full survey can be fund on Royal LePage 2023 Canadian Co-owners Survey. Below are some astounding trends from the said survey:

• 6% of homeowners currently co-own their property with someone other than their spouse or significant other;
• 89% co-own with family;
• 7% co-own with friends;
• 8% co-own with someone who is not a friend of a family member;
• Only 44% of the respondents indicated that they co-habiting with the co-owners named on the title;
• 76% indicated that affordability was a major factor in the decision to co-own a home.

The above trends signify that more Canadians are deciding to co-own a home due to financial hardship and as a result of the current elevated mortgage interest rates.

Canadians are required to jump through a stringent threshold to qualify for a mortgage, preventing many individuals and even couples from being able to qualify and afford a property.

By dividing the cost of a home between numerous parties and entering into a co-ownership agreement by pooling resources, Canadians can qualify for a mortgage and step onto the real estate ladder more easily, alleviate some financial burdens, and expand their home search to a more desirable location where this was not available to them with their budget alone.

With this in mind, let us take a closer look at the concept of co-ownership and the agreement associated with such a structure.

Co-ownership

A co-ownership is the sharing of ownership in property between co-owners, wherein each owns a percentage of the property. Examples include but are not limited to the following: a shared living arrangement where two or more of the co-owners live in a home together and share living spaces such as the kitchen and living room, or one or more of the co-owners has exclusive use and occupation of the property. Whatever arrangement applies to you in your particular circumstances it should always be papered via a Co-ownership Agreement (“agreement”)^[1].

The said agreement is drafted to protect all parties to a contract and governs the relationship and expectation of each of the co-owners in relation to a property. The agreement can either be between individuals or corporations who either intend to occupy the premises or hold it for an investment.

If drafted properly, such an agreement outlines each co-owner's proportionate interest, financial obligations, maintenance obligations, rights of each co-owner, what occurs in the event conflict arises, and what occurs once the property is sold. However, the aforementioned is not an exhaustive list.

Parties to such an agreement can execute it at the same time the property is purchased or at any time thereafter. Three main categories exist in this realm:

• Occupying co-ownership (the co-owners occupy the property);
• Non-occupying co-owners (co-owners do not occupy the property, but use it as an investment to sell it or rent it); and
• Hybrid co-ownership (one co-owner resides at the property and one is a passive investor).

It is crucial that you connect with your lawyer to prepare such an agreement if you find yourself in any of the above categories and any of the scenarios, which include but are not limited to the following^[2];

• You are purchasing a property with family or friends for residential purposes;

• You are purchasing a property with one or more people for investment purposes;
• You are purchasing a property with a partner, with varying interests in the property; or,
• You are trying to establish mortgage repayment arrangements or refinance to divide the responsibility for your mortgage among various individuals;
• If you are preparing a Will or conveyance by a trust to multiple people as co-owners;

• If a family property is being passed down to future generations;
• If you decide to invest in property with family or friends, whether for residential, investment, or vacation purposes, such as a cottage or timeshare;
• If you and your business partner decide to purchase a property together for commercial or investment purposes; and
• If, after a divorce, you and your ex-spouse choose to rent out your property rather than sell it.

I have drafted a myriad number of co-ownership agreements ranging from simple to complex. My clients are always much more at ease in proceeding with a co-owned purchase transaction when they have an agreement in place that fairly protects them and clearly outlines their rights and responsibilities in relation to a co-owned property. This way ambiguity and potential conflict with friends, family members, and business partners is avoided.

As this trend continues to increase in popularity as a result of the current costly real estate market sphere, we are likely to see the co-ownership structure elevate. With this said, to determine whether a co-ownership agreement is an appropriate avenue for your circumstances it is important that you discuss same with your lawyer to ensure that your rights and responsibilities are fairly outlined and protected.

I hope that this article has provided you with some helpful information. If you have any questions, please do not hesitate to contact me at mira@sorbaralaw.com.