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UNDIVIDED CO-OWNERSHIP, WHEN NOTHING GOES ANYMORE!

Maxime Tardif, Real Estate Agent

Undivided co-ownership is an unknown subject for many people and raises questions about its structure and its different features. Many confuse it with the divided co-ownership, where each owner holds his private portion, as well as a share of the common parts. In the undivided co-ownership, the building is owned by several owners and there is no syndicate of condominiums or declaration of co-ownership. Therefore nothing regulates the rights and obligations of all as in the divided co-ownership. It is an indivision agreement that allows the administration of the building. The latter is optional, but highly recommended. Co-ownership by undivided ownership generally has two forms:

  • With a convention;
  • Without convention;

The undivided co-ownership with a convention is the most common and effective way of owning a building with partners. In this form, an agreement regulates the rights and obligations of each party, which avoids ambiguities. Here, we are referring to the organized undivided co-ownership. This convention is usually written by an experienced notary and aim to make the cohabitation harmonious and prevent possible problems. Believe me, you want to avoid the quibbles of co-owners! An indivision agreement properly drafted and published in the land register also enables the co-owners to obtain limited liability financing. In other words, as part of an organized joint ownership, each co-owner is the sole responsible for their mortgage.

In contrast to organize undivided co-ownership, there is one that is more conducive to problems and disagreements, that is, the one without a convention. Here, surprises and inconveniences are often realized at the rendezvous! We commonly see this type of indivision when members of the same family decide to acquire a property together. Usually, things go rather smoothly. However there is always the other side of the coin. This type of condominium has its share of disadvantages and many are of the opinion that because it is members of the same family, everything will be fine as everyone will always get along. What if it turned sour?

Let’s take a specific and real case that is happening to our customers right now. Three members of the same family each live in a dwelling in a 6-unit building that they have owned for several years. They are getting older, their needs have changed and they are exploring other life projects. Two of the owners are ready to put a “for sale” sign in front of the 6-plex in order to start thinking about a property requiring less maintenance. Here, the third owner categorically refuses to sell the multi-housing. Unfortunately, they never had an indivision agreement that would have provided for the way to go in such circumstances. To add to the complexity of the situation, the parties do not agree on the fair market value of the building. You will probably say that it would be easy to call a chartered appraiser to fix the dispute, but they also do not agree on who to mandate. We quickly find ourselves in a dead end where no convention dictates how to untie it. At this stage, the path of mediation will undoubtedly be an option to consider facilitating the process since the amicable agreement does not seem to be possible.

The Civil Code of Quebec agrees that “no one is bound to remain in the undivided […]”. In other words, each co-owner may require forced partition in court, in the event of disagreement, unless an indivision agreement providing for a postponement of partition does not limit this right.

So, what are the solutions available to co-owners who cannot get along? Without an agreement written in front of a notary, the answer remains rather complex…

The first and best option remains to agree quickly on the development of an indivision agreement and thus ensure the smooth running of things. The best would also be to establish under what conditions the sharing will be done in a situation like that of our three clients.

As mentioned by Amel Barkati, notary of the study Barkati Barge, s.e.n.c.r.l. “This is the ultimate solution we are aiming to break down such a stalemate.”

Take our case and take the example a little further. A buyer, who is foreign to the sellers, is interested in the building and submits an offer on it. The two co-owners wanting to sell are ready to accept this offer which represents a fair value and acceptable conditions according to the comparables on the current market. On the other hand, the co-owner who resists does not want to consider this offer or at least wishes to continue to hold their shares in the building. One option would be to offer the latter to buy the building at the same price (as the right of pre-emption provides in an indivision agreement). The other option would be to sell the shares of the co-owners wishing to do so. However without convention, this can be very risky and difficult to achieve.

If the antagonist does not want to collaborate on any of the proposed solutions, the courts are unfortunately one of the options to consider. To do so, a lawyer can send a formal notice to the undivided co-owner who refuses to sell, forcing him to collaborate with third parties. The sale of the building may be required or an obligation to consult a notary for the drafting of an agreement, in order to avoid financial losses that other co-owners may suffer in the situation. Usually, the individual will have approximately 10 days to answer.

As we can see, it can be a long and complex process to reach an agreement that could have been achieved by a convention. A notary agreement costs between $1500 and $2000. It is a cheap cost to avoid legal fees and a lot of headaches!

If you are undivided or intend to be in the near future, do not forget to consult a notary such as Amel Barkati for the preparation of your indivision agreement. The act will be published in the land register and will protect you against possible misunderstandings. As the old saying goes, “prevention is better than cure”!