Co-ownership Agreement basics... so your all in the know!

Cottage Co-ownership Agreement- If you thinking of sharing a cottage you need to create a cottage co-ownership agreement.

You are establishing the mutual and defined rules and regulations for the property use and enjoyment.

The Basics

• What is Your Budget?
  
  Are you going to mortgage the property? You should establish a firm budget to consider everyone's up front costs. By the time you gain ownership of the property the costs can be significant.


• Consider the mortgage down payment


• Home Inspection


• Septic Inspection


• Survey costs if required


• Travel Costs for the Search and Inspections


• Lawyer's fees for the documents required and the closing of the property.

Keep an itemized list of all expenses during this stage.

You need to discuss the co-ownership agreement!

This doesn't mean you don't trust your co-owners. It is to simply put in place the rules of running the property, how issues are dealt with, how time is shared etc.

A lot can change in five or ten years. The way everyone anticipates possible issues now will ensure that they are dealt with smoothly and efficiently.

You can't anticipate all of the issues that may come up, but proper planning and a properly prepared agreement will cover many of the aspects that may arise.

A Few Items to Consider in a Cottage Co-ownership Agreement

• Are you going to be equal owners or not? This can get complicated if the property is not owned equally. Expenses, time usage, improvements all become an issue if the majority owner wants it done. Clarify first!


• How is the title of the property to be held? Are you going to be joint tenants or tenants-in-common? Are you going to form an entity such as a limited partnership, corporation or trust?
  
  Explore the system chosen, if someone gets into trouble financially, the other co-owners may find a creditor wanting to take the cottage.

  

  
  
  A formed entity may have protection from creditors in regards to the financial actions of one co-owner... this can protect the property from seizure. The offset is it the cost to maintain....accounting fees etc.



• Who will be responsible for the property expenses and ensuring they are paid?
  
  A detailed itemized annual operating budget should be drawn up as soon as possible. You all need to know how to pay and who will be responsible the payments. This can be a shared responsibility can be rotated by years whatever seems to be the best system for everyone.

A suggestion is to pay six months or a year in advance right away, you then know the money is there and do not have to chase for expenses. The important thing is to decide and what about if someone doesn't pay?


• What about property improvements?
  
  Some things may need to in the budget right away. If the property needs a new deck, roof or docks, you might want to buy new beds, furniture, fridge, stove etc.
  
  Adds up quick, make sure everyone agrees on the budget and costs to do this. You should get quotes from several contractors in the area ensure your work list is itemized with time lines.
  
  Is there more? Does someone, or a few of you, want to have a gazebo built to get away from the bugs, how about a hot tub, boathouse, canoes, kayaks...there are so many things that can be added.
  
  In this situation, what if someone doesn't want it. You need to clarify how it is all dealt with and have a common vision for the future sharing of the property.
  
  

  

  To further illustrate how a co-ownership agreement can be broken down further:
  
  
  • Routine Maintenance...
  
  
  • Necessary Repair...
  
  
  • Discretionary Repair...
  
  
  • Major Repair and Damage...
  
  
  • Rentals...
  
  
  • Family and Friends...
  
  

You can be general in the description, the more detailed co-ownership agreements will be very specific and leave little to question.

• How will the time be shared?
  Equal sharing is probably the best way to share ownership, equal costs, payments and responsibilities. This way you can evenly divide up the time, into ownership blocks.
  
  For example, if there are four of you sharing, you each get two weeks in the summer, every eight weeks it rotates back to the first share.
  
  
• Who looks after the ongoing and annual maintenance?
  Having the grass cut, the leaves raked, the docks pulled out if necessary. These chores are annual in nature and must be done to ensure the property is kept in great condition.
  
  
• Are you or one of the other owners planning on renting the property?
  You need to agree that this is OK and all co-owners are comfortable with this.
  
  

If the property is held in an entity, you need to be aware of tax implications. If a co-owner plans to use their weeks at the property as a rental, this can affect the property. Revenue Canada and capital gains taxes are issues that need to be kept in mind if a co-owner is thinking of this.

For this you should get Professional Tax Advice!

What about death, divorce, new spouse, job loss and reselling a share or the property?

For a Formal System of Shared Ownership
Have a Look at our Cottage Co-ownership System



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