THE DANGERS OF FAILING TO HAVE AN INDIVISION AGREEMENT
Most real estate transactions involve people buying or selling with at least one other co-owner. When two or more individuals own a single property together, it is known as “undivided co-ownership.” We consulted with notary Judy Saltarelli, who explained to us that, according to the Civil Code of Québec (CCQ), the guiding principles of undivided co-ownership are:-
-Each co-owner has an undivided or fractional share in the property.
-It does not involve a physical division of property, rather a legal division of ownership.--
-It is automatically established when co-owners purchase a property together. The mere mention of two or more purchasers in a deed of sale creates indivision.
-If not otherwise specified, each co-owner is presumed to be an equal owner of a property.
-By default, the rights and obligations of co-owners are set out in the CCQ.
To provide a better framework of co-ownership, a legally binding contract called an indivision agreement is necessary.
Catherine experienced first-hand the consequences of not having such an agreement in place. Here is her story:
Back in 2001 after graduating from university, she and her boyfriend decided to purchase a condo together. He had enough cash for a 5% down payment but couldn’t qualify for a mortgage on his own. She didn’t have any money to contribute to the down payment, but with their two incomes combined, they qualified for a loan. They eventually found a condo that suited their needs and was within their budget, and they purchased it as co-owners.
They did not have a indivision agreement prepared or notarized but they did verbally agree that should they ever break up and decide to sell, that he would get his down payment back and the rest of the proceeds would be split 50/50. Unfortunately, after a few years of living together, they broke up. Catherine moved back to her parents’ home. What she thought would be a quick and easy process turned into an extremely long, drawn out and unpleasant year. Her ex was very comfortable living in the house and refused to take any steps toward settling their agreement. Catherine had to continue to pay her half of the mortgage, condo fees and taxes, because if she didn’t, she risked ruining her credit rating and defaulting on the mortgage payments. Finally, after a year of her paying for a home she no longer lived in, he took the necessary steps to buy her share.
Her question after going through this is what both could have done to better protect themselves. Should her ex-boyfriend have received appreciation on his down payment? They never thought of that! Should they have stipulated a timeframe in which everything needed to be settled so it didn’t drag on for years?
An indivision agreement could have made all the difference. What exactly is such an agreement? Once again, notary Saltarelli explained that it is simply a written contract that can be prepared by a notary, is legally binding on all parties, and achieves the following objectives:
-It provides a better framework for the co-ownership by setting out the rights and obligations of each co-owner in a more detailed and specific way than what is provided by the law.
-It modifies or supplements standard and basic provisions of the law.
-It addresses issues that are unique to the co-ownership, such as the sharing of expenses, maintenance, use of the property, and establishes a plan for future events such as the sale of the property and decision-making processes.
Catherine’s story serves as a reminder of what can happen when there is no written agreement in place. Here is a summary provided by Ms. Saltarelli of what those implications might be:
-Co-owners of a property in Quebec are governed by default rules set by the CCQ, which can lead to difficulties in decision-making and property management. Co-owners may need to go to court to resolve disputes or make decisions, which can be costly and time-consuming.
-The shares of undivided co-owners are presumed equal under the law, and without an indivision agreement, the value of the property will be split equally, regardless of each co-owner’s contribution. An indivision agreement can establish an unequal division of shares based on each co-owner's down payment and share proportion.
-The co-owner who provided the down payment may lose it in the process of an equal division, as the presumption of equality entitles each co-owner to an equal share of the property during the sale.
-A co-owner can sell their share of the property, which can result in a new co-owner. An indivision agreement can include a right of pre-emption, giving the remaining co-owner the first right to purchase the share before it can be sold to a third party. This can prevent unwanted co-ownership situations.
At TEAM BROADY, we know that owning a property is so much more than simply buying and selling. We are passionate about helping you keep your household organized and protected. If you or someone you know is in the market to buy or sell a property, please contact us today. If you need the advice or guidance of a notary, we can certainly point you in the right direction as well! We can be reached at 514-613-2988 or by email at firstname.lastname@example.org