Buying an undivided condo: the advantages and disadvantages

Becoming a co-owner is an accessible dream? There are several ways you can do this with complete confidence. Consult this article to better understand the particularities of undivided co-ownership in order to guide your research and find the ideal property.

What is undivided co-ownership?

By purchasing an undivided co-ownership, sometimes called an undivided condo, you will be purchasing a percentage of the entire building since, unlike divided co-ownership, it is not divided into parts private and common. Thus, several people hold the property rights to the entire building and share the acquisition costs, as well as the operating costs.

As an undivided co-ownership only has one land registry number, municipal and school taxes, for example, are common and must be paid by all the owners according to their respective share.

The most common example of undivided co-ownership is that of a couple purchasing a new home. By co-signing the documents, they both become owners of the building. This is also called a building in co-ownership by undivided ownership.

The shares held by each of them are presumed equal, unless the deed of sale contains a clarification on this subject. This is also the case for three long-time friends who would purchase a triplex, for example.

Clarify the situation thanks to a joint ownership agreement

A joint ownership agreement makes it possible to define the usage rights of each co-owner. This is not obligatory, but it is strongly recommended. It must be published in the Quebec Land Registry to be enforceable against third parties.

The joint ownership agreement may include:

• the duration of the agreement (up to a maximum of 30 years);
• the rights and obligations of the co-owners (right of exclusive use, share of the joint owner, right of pre-emption, right of withdrawal);
• sharing of obligations regarding maintenance and renovations;
• the distribution of expenses;
• restrictions on sale;
• the rules of administration of the building;
• the rules surrounding sharing in the event of end of joint ownership.

For example, the joint ownership agreement makes it possible to determine whether the owners can transfer their share to the person of their choice or whether they must first offer it to the other owners. It can also specify whether one of the sections of the building is for the exclusive use of one or other of the owners.

Mortgage and down payment details

Obtaining a mortgage loan for the purchase of an undivided co-ownership can be more difficult, in particular because each owner must have a down payment equivalent to or greater than 20% of the value of their share . Generally, each of the undivided owners is responsible for repaying their own loan. In the event of a payment default, the creditor will only exercise its guarantee against the owner concerned.

However, although the Civil Code of Quebec allows each owner to obtain a separate mortgage, financial institutions can require the intervention of all undivided owners to grant mortgage financing. Generally, the bank finances the entire building, it will not want to be second in line to another financial institution.

Some interesting advantages

The greatest advantage of undivided co-ownership is undoubtedly that it allows access to property for people who would not be able to achieve it otherwise, given the investments that this involves. And although the required down payment is 20%, this condition can represent attractive financial security.

Moreover, unlike divided co-ownership, the joint ownership agreement gives more freedom to the co-owners. For example, it may require unanimity for certain decisions or propose the distribution of charges other than according to shares.

Disadvantages to consider

The Civil Code of Quebec barely regulates the rights and obligations of undivided co-owners, which means that different conflicting situations can arise, such as the exclusive use of part of the building by one or 'other of the owners.

What's more, undivided co-owners are jointly responsible for certain costs, but have no obligation to contribute to a contingency fund. This situation can become problematic when larger-scale work must be carried out, or when an owner does not pay his share on time. (Ex.: a single municipal tax bill, all co-owners are held responsible in the eyes of the issuer).

Finally, selling the share of an undivided co-ownership can be more difficult. Even if the joint ownership agreement is detailed, new buyers may be more reluctant to acquire this type of co-ownership.

Finally, among other disadvantages, a 20% down payment is a significant amount for a future buyer.

Source: centris.ca