Legal Advice a must when Co-Owning Real Estate in BC

By Nima Rohani

Friends and family who team up to buy real estate need to document their agreements to reduce the chances of a legal battle down the road.

British Columbia’s notoriously hot property market is pushing more people to seriously consider co-ownership of a house, but in my experience, the concept of a formal co-ownership contract has yet to become quite as mainstream.

Why co-ownership?

The appeal of real estate co-ownership is a relatively easy one to explain. With average house prices standing, according to CTV News, at over $1-million provincewide — closer to $1.3 million in Vancouver — the prospect of home ownership is simply beyond the reach of most younger British Columbians on their own or with a spouse.

Even if a predicted correction comes to fruition — financial institution Desjardins recently warned that average house prices in Canada could fall by as much as 15 per cent by the end of 2023 thanks to forecast interest rate hikes — that would still not be enough to bridge the gap for many prospective homeowners struggling to get on the housing ladder.

And those with an income sizeable enough to support payments on a seven-figure mortgage may still be unable to come up with the required down payment, thanks to mortgage rules that require a 20-per-cent deposit for property worth more than $1 million.

Who is doing it?

Most of the co-ownership arrangements I see in my practice are between members of the same family — typically parents helping out their children with a down payment or going on title to guarantee the mortgage obligations of their offspring.

It can also work in reverse, with younger members of the family adding their name and income to boost a parent’s ability to qualify for a mortgage or to refinance an existing home or vacation property.

Partnerships between friends or other non-relations are rarer, but the idea appears to be gaining traction, judging by a recent proliferation of financial products such as credit union Vancity’s “Mixer mortgage,” which caters to first-time home buyers looking to share the cost of a home with friends, roommates, or co-workers.

In Ontario, buyers even have the option of a corporate partner, according to digital magazine MoneySense, which recently reported on a company that helps prospective owners break into the equally expensive Greater Toronto Area housing market by providing them with up to 75 per cent of their down payment in exchange for an equity share in the home.

Potential pitfalls

The more people are involved in a real estate purchase, the more difficult it will be to keep everyone’s interests aligned over time.

Even if the parties start out certain that they are in their co-ownership relationship for the long haul, personal circumstances can change quickly, and one person (or more) may be ready to sell before the others on title.

It’s easy to imagine, for example, how a newly married co-owner would prefer to purchase a property with their new spouse than remain in the one they bought with their friend, or how a career crisis could make a sale look attractive to a co-owner who is no longer able to keep up with their share of the mortgage payments.

Things can get ugly when co-owners are unable to agree on the way forward, and one party may be able to force a sale without the consent of the other after launching a lawsuit under the province’s Partition of Property Act.

Co-ownership agreements

Whoever your partners are, a well-drafted co-ownership agreement can help reduce the chance of a legal dispute by pre-empting common disputes and prescribing routes of action when certain issues arise, ensuring all parties are on the same page ahead of time.

The good news is that co-ownership agreements are among the most straightforward and least expensive legal documents for lawyers to draft. Here are some of the key issues yours should cover:

  • Amount to be contributed by each party to down payment and closing costs
  • Percentage equity interest in the property allocated to each party
  • Distribution of any income from the property
  • How responsibility for monthly mortgage payments will be split between the parties
  • Who will be responsible for maintenance of the property and associated costs
  • Clauses dealing with the sale of the property, covering issues such as who has the authority to force a sale and when, and rights of first refusal, among others.

If you are considering purchasing real estate with a family or friend and would like to explore how a legal agreement can protect your interests, schedule a consultation with me.

*This post is not intended to be legal advice and should not be taken as such. Please contact McConnan Bion O’Connor & Peterson if you have any questions regarding this post or require assistance or legal advice regarding a Co-ownership agreement.