Undivided co-ownership: an alternative to condos?

The conversion of a immovable to divided co-ownership (condos) is subject to strict formalities and municipal by-laws, which can restrict the conversion or make it subject to certain conditions.. 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.

An interesting alternative is then offered to undivided co-owners, namely the subjugation of the building to 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 (Tribunal administratif 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.

WHAT YOU SHOULD KNOW ! The Civil code of Québec, allows each undivided co-owner to obtain a separate hypothec binding only himself. In the present market, save for particular cases, only the National Bank of Canada and some Desjardins credit unions grant this type of financing, and even then only if an indivision agreement is registered on the immovable.

WHAT TO KEEP IN MIND : The Civil code of Québec does not regulate to any extent the rights and obligations of undivided co-owners. Without an indivision agreement, none of you can claim having an exclusive right of occupation of a portion of the immovable in particular. To insure the drafting of an indivision agreement in which the rights, obligations and guaranties are clearly spelled out, it is important to consult a notary with experience in these matters.

 WARNING ! It is important to note that most indivision agreements do not allow rentals. For more information on the advantages and disadvantages of undivided co-ownership, consult the article of Me Ginette Allard, notary.

CONSULT THE PUBLICATION Achat et vente d’un condo : Tout ce qu'il faut savoir at pages 42 and following.

 

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