Undivided co-ownership: an alternative to condos?

Undivided co-ownership (by indivision) has existed since time immemorial, even before the existence of divided co-ownership. Indivision allows two or more people to own a building while sharing acquisition and operating costs. A co-ownership is said to be undivided when the right of ownership is not accompanied by a material division of the property. The building usually has a single lot number. The owners own a share of this lot. The municipal and school tax bills are thus intended for all the co-owners of the building, who must separate the costs. In addition, since 1994, the Civil Code of Quebec has contained several rules governing joint ownership.

Alternative to divided co-ownership

The conversion of an immovable into divided co-ownership is subject to strict formalities and regulations by municipalities, which may restrict the conversion or subject it to certain conditions. However, this is not always possible, particularly because of the very expensive costs that such a process can generate (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 subjection of the immovable to undivided co-ownership agreement, and this at a lower cost and without too much difficulty. It should be noted, however, that the legal and financial implications of divided co-ownership are very different from those of undivided co-ownership (consult the factsheet: Divided and undivided co-ownership).

The undivided co-ownership agreement

Undivided co-ownership can be done with or without an agreement between owners. However, the current market shows that the existence of an indivision agreement containing the required clauses for the protection of co-owners and hypothecary creditors brings an added value, compared to joint ownership without an agreement, which is also reflected in the sale price of its share and the valuation used to obtain separate mortgage financing for each of the co-owners. In some neighbourhoods, this added value is even equal to that brought by the transformation into divided co-ownership.

The so-called organized indivision agreement specifies the rules that prevail between the co-owners and includes protection clauses for co-owners and creditors. It is imperative that it be prepared by a notary whose expertise is recognized in this area. Unlike a declaration of co-ownership, an indivision agreement cannot be signed by a sole proprietor. Joint ownership necessarily implies the presence of at least two co-owners. If a developer wishes to sell in joint ownership, he wouldhave to wait for the purchase of a first unit by a purchaser, after which the joint ownership agreement had been signed and published in the land register.

The indivision agreement provides for the exclusive rights of use of each of the co-owners, for example concerning the use of the courtyard, balconies, roof terraces and parking lots. Also, a well-drafted agreement will contain, in particular, the cross hypothec allowing recourse against the share of the immovable of a co-owner in default.

Nowadays, the indivision conventions are much more fleshed out. In fact, their content may be similar to that of a declaration of co-ownership, for example with respect to common expenses and rules concerning meetings of co-owners.  However, they can be distinguishable from it.  For example, co-owners could decide to grant a veto to a co-owner on certain decisions, require unanimity for others or establish majorities without necessarily being equal to the shares of each co-owner. The apportionment of common expenses may also be done in other ways than in proportion to the shares of each.

Cadastral operation

In undivided co-ownership, no cadastral operation is required (no need for municipal approval or the filing of new lot numbers with the cadastre service and the land register), since the co-owners hold undivided rights in the same property. This results in cost savings and a reduction in delays of several months compared to divided co-ownership.

The certificate of location does not differ from that of the unconverted immovable. In addition, it is possible to ask a land surveyor to carry out the plans and measurements of the various apartments and common portions for restricted use, if necessary, in order to obtain a certificate of location that better reflects the reality of the use of the building.

Mortgage

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, since mortgage insurers do not provide mortgage insurance for such loans.

Some disadvantages

The Civil Code of Québec allows the owner to repossess a dwelling to live in it himself or to house certain members of his immediate family. However, it is important to know that in a situation of joint ownership with a person other than his spouse, it is not possible for an owner to repossess a  residential dwelling since a restriction to this effect has been provided for in the Civil Code.

The co-owners are held jointly and severally liable for certain costs and charges such as municipal and school taxes, insurance, maintenance and repair costs of the common portions. In addition, it is important that the agreementinclude a clause obliging the co-owner wishing to do major work on his apartment to provide the others with sufficient guarantee that he has sufficient funds to pay for the work. In these respects, part of the equity (20% down payment) on each of the shares will be used to guarantee compliance with the obligations of the co-owners contracted under the agreement through the intersecting hypothec created in favour of each of the co-owners and contained in the indivision agreement.

Conclusion

In short, organized undivided co-ownership, even if it may have certain disadvantages, can be a very interesting alternative to conversion to divided co-ownership in many cases. A consultation with a notary specializing in co-ownership can help you make an informed choice in this regard.

 

WHAT YOU SHOULD KNOW! Indivision does not require any special authorization, either by the municipality concerned or the Administrative Housing Tribunal. However, the rights of tenants must be respected.

http://www.condolegal.com/images/Boutons_encadres/A_retenir.pngWHAT 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 should be noted that most joint ownership agreements do not allow rental.  In addition, they must be published in the Québec Land Register so that they can been forceable against third parties.

 

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