An alternative to condos?

In my practice, many clients consult me to convert an immovable comprising several apartments into divided co-ownership. Unfortunately this does not always prove possible, more particularly because of the very high costs such a process implies (such as subdivision taxes known «Parkland taxes»  applicable in certain boroughs of Montreal or other municipalities) and vested rights in favor of tenants.

However, I then explain to my clients that their immovable may be governed by an undivided co-ownership agreement, at a lower cost and without many formalities. You should know, however, that the characteristics of an apartment owned in divided or undivided co-ownership are quite different (consult the factsheet: Divided and undivided co-ownership.).

Necessary authorizations

Indivision does not require any special authorization, either from the municipality or from the Rental Board (Régie du logement) One should, however, respect the vested rights of tenants.

The undivided co-ownership agreement

The so-called organized co-ownership agreement specifies the rules that govern the undivided co- owners and includes provisions  for the protection of the undivided co-owners and their creditors. It is imperative that it be prepared by a notary whose expertise is recognized in this field. Unlike a declaration of co-ownership, an undivided co-ownership agreement cannot   be signed by a single owner. Indivision necessarily implies the presence of at least two co-owners. If a developer wants to sell under the undivided co-ownership formula, he will have to wait for the purchase of a first unit by a purchaser, after which the undivided co- ownership agreement may be signed and registered in the land register.

The undivided co-ownership agreement provides for the exclusive rights of use of each co- owner, for example regarding the use of the courtyard, balconies, roof terraces and parkings. Also, a well drafted agreement will contain the special cross hypothec allowing a recourse against the share in the immovable of a defaulting co-owner.

Nowadays, undivided co-ownership agreements are much more elaborate. In fact, their content can be compared to that of a declaration of co-ownership, more particularly in relation with common expenses and the rules concerning the General Meetings of co-owners.

Cadastral operations

In undivided co-ownership, cadastral operations are not   required, since the co- owners hold undivided rights in the same property. The certificate of location is not different from that of the non-converted building. However, it is possible to ask a land-surveyor to draw the plans and take measurements of the various apartments and common portions for restricted use, where appropriate, to obtain a certificate of location that better represents the reality of the various uses of the immovable.

Hypothecs

Contrary to popular belief, the existence of a so called organized undivided co-ownership agreement will allow co- owners to hypothec their share in the immovable and the exclusive rights of use of their apartments, independently of other co- owners, so they will not be held responsible in the event of the default   of a co- owner on his hypothec. These hypothecs are usually granted by the National Bank or Caisses Desjardins. The minimal down payment required is 20% of the condo purchase price, not 5%, as is the case in most divided co‑ownerships.

In summary, although organized undivided co-ownership may have some disadvantages, it can often be an interesting alternative to conversion into divided co-ownership. A consultation with a notary specialized in the field of co‑ownership could help you make an informed choice in this regard.

Me Marjorie Béchard, Notary
DE GRANDPRÉ JOLI-COEUR s.e.n.c.r.l.
2000, avenue McGill College
Bureau 1600
Montréal (Québec)  H3A 3H3
Tél. : (514) 287-9535
Fax : (514) 499-0469
Courriel :  m.bechard@djclegal.com

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