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Co-ownership: One Way to Afford a Home

By Michelle Hopkins Jun 16, 2014

Jeremy Wilson, 38, was frustrated with paying high strata fees and wanted a bigger back yard for his dog.

When he and his wife, Kim, started looking at single family homes, their frustration only grew.

"I work in Kitsilano and my wife in Richmond and we really wanted to stay in Richmond. However, what we could afford and what we wanted were miles apart," says Wilson. "In our price range, the homes were either really small bungalows or in complete disrepair."

The couple came up with an idea that is growing in popularity in cities across BC co-ownership, whether it's one or more roommates, co-workers, friends or family members buying and sharing a home together and splitting the expenses.

The couple approached Kim's mother and asked if she wanted to purchase a home together. At the time, Kim's mother, Jean, also owned a townhome and was fighting cancer. It seemed to be a win/win situation.

"We knew we could all live under the same roof and it gave Kim peace of mind that her mother was nearby," says Wilson.

They ended up buying a 2,500-square-foot home in Steveston for nearly $900,000.

"We never could have bought this house on our own," he says, adding Kim's mother passed away and her half-share of the home was divided between Kim and her sister (who now lives in the lower part of the family home. "We split the expenses three ways and we've never had a problem."

Mixer Mortgages

Colin Lawrence, mortgage development manager at Vancity, says this trend is why the lender created the Mixer Mortgage in 2006.

"We wanted to address this issue of co-ownership and we came up with a checklist to help our members decide if this is the right option for them," he says.

Essentially, a Mixer Mortgage is not unlike a regular mortgage: mortgage payments are due each month, and if payments go into arrears the lender can foreclose on the property. The exceptions are that the mortgage can be split into multiple parts, so one owner can opt for a fixed rate and the other can choose variable, and payments can come from separate accounts.

Mortgage broker Robert McLister of Canadian Mortgage Trends says of the Mixer Mortgage: "Anyone who isn't hitched to their co-applicant by law or commonlaw should use this checklist and get a legal co-ownership agreement. If you don't and your co-habitant stops paying the mortgage, you're up the creek. You may be up the creek anyway, but an agreement helps."

Compared to a typical owner-occupier mortgage, this type of mortgage presents the same or lower risk to the lender.

But there are considerable risks to the participants.

The Risks

Although it seems very alluring to buy a home where you're sharing the costs with family or friends, there are many pitfalls.

That's why Randy Klarenbach, real estate lawyer at Richards Buell Sutton LLP, strongly cautions his clients against these types of arrangements.

"What happens if one owner loses their job or gets sick and can't work, or moves out of town?" says Klarenbach. "A lender can't foreclose on half a property."

Or, he went on to say, one party simply can't pay? It becomes the other person's responsibility to make the mortgage payments or risk losing the house.

"Bottom line, it's a huge financial risk," he says, adding he's seen co-ownership agreements as long as 500 pages, covering every conceivable eventuality.

"Even though some of these arrangements do work well, it is my job to think of everything that can go wrong and let my clients know."

Colin Lawrence concedes that, as with any financial arrangement, there are drawbacks.

But if all parties come in with eyes wide open, with a workable plan, with expectations drawn up and good legal advice, co-ownership can work well.

"Everyone must be aware of all of the things that can go wrong and that's why we provide our members with an agreement checklist," adds Lawrence.

It's been five years since Wilson entered into a co-ownership agreement and "it's been fantastic the only drawback is the lack of privacy."


Agreement Checklist

(Courtesy of Vancity)

A co-ownership agreement sets out the ownership rights of both parties and provides for an equitable distribution of the property in the event that the relationship ends or the property needs to be disposed of for any reason. Basically, this agreement ensures that the investment of all buyers is protected.

A co-ownership agreement is recommended in any situation involving parties, not protected by a marriage agreement, who want to purchase real estate, including:

  • Relatives
  • Friends
  • Business partners
  • Individuals intending on living in or renting the property being purchased

A property co-ownership agreement is a legal document you discuss with and have drawn up by an attorney.

Here are a few topics to discuss and agree upon with your co-owners before seeing your attorney. When you meet with the attorney make sure he/she covers them all.

  1. Outline each individual's " co-ownership interest" in the property, for example 50/50. This split could affect decisions, such as how property is sold and how the proceeds are split.
  2. Distribution of operating expense payments and revenue. Agree to prepare an annual operating budget for expenses arising from the property, such as:
    • Property transfer tax in connection with the acquisition of the property
    • Legal fees in connection with the acquisition of the property
    • Property taxes and assessments fees
    • Property insurance payments
    • Strata corporation maintenance fees and any extraordinary fees
    • Water and sewer fees
    • Electricity and telephone charges
    • Expenses for maintenance resulting from normal wear and tear
    • If being rented, distribution of all revenue and income generated by the rental of the property
  3. Distribution of property repairs and improvement expenses. Consider the following:
    • Will repairs be carried out only as agreed by all parties except in the case of an emergency? And, how are emergency repairs paid for?
    • Will property improvements be done only by agreement from all parties?
  4. Agreement on any division of use or access to any parts of the home or garden.
  5. Furnishings purchased for the premises will be owned and paid for by whom?
  6. How and when can the property be sold?
    • There are several ways to deal with exiting the co-ownership relationship. Most co-ownership agreements will include a "right of first refusal. "This means one owner wants to sell their interest in the property and the other owner(s) has the opportunity to purchase that interest at an agreed-upon price.
    • A co-ownership agreement can also specify the process for disposing of the property when both parties agree to sell the property. Setting out these details in advance will help to eliminate time- consuming, and perhaps costly, disagreements.

A few other things to consider:

  • Taking out life insurance for yourself is also a good idea so that your share of the home is protected in case of death. There are two ways that this can be done: each owner having their own life insurance policy; or all owners covered under the same life insurance policy.The second option tends to cost less overall as it eliminates multiple policy fees. Contact Vancity Insurance at 604.877.8412 or toll free at 1 (877) 833-7400 to find out which life insurance option is best for you.
  • Include a process for dispute resolution in the agreement.
  • Set up a joint slush fund(savings) for emergency repairs.
  • Agree how household tasks, such as taking out the garbage, will be shared.
  • Agree if you will have pets in the home.
  • Document all decisions you make.

Vancity can supply a list of attorneys experienced with co-ownership agreements. Generally, fees range from $250 to $1,000, depending on the complexity of the agreement. Also, for more complex agreements, attorneys recommend that all co-owners obtain independent legal advice.

Michelle Hopkins
Michelle Hopkins is a Vancouver-based freelance writer with extensive magazine, newspaper and online writing experience in home décor, new home developments, culinary adventures, wine, travel and more. Michelle writes for many notable publications including Real Estate Weekly and other Glacier Media Group publications, Western Living Magazine, Vancouver Magazine, Home Décor & Renovations, to name just a few. Michelle is passionate about anything to do with real estate.
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