By Craig T. Watrous:
Co-Ownership Agreements are an excellent idea any time two (or more) unmarried people decide to
buy a piece of real estate together as tenants in common or joint
tenants. These arrangements are common with unmarried couples and between family members and friends. A well-drafted agreement specifies how the property will be owned, used, how costs of the property will be allocated between the owners, and how the owners can sell their interests. Below are some of the general issues the parties should discuss and may want to include in their agreement. Keep in mind, if a dispute arises that is not included in your agreement, a court may ultimately decide what your arrangement was.
1. Ownership percentages. How much of the property will each party own? Being tenants in common with one another allows the parties to have unequal ownership percentages in the property vs. joint tenants.
2. How will the property be purchased? Who is paying for what and how is that payment being valued in terms of ownership in the property?
3. Maintenance, repairs, and replacements to the property. How will these costs be allocated between the owners? Who is the owner responsible for receiving notices and paying these items? What repairs need the approval of all of the members? Are there any preferred contractors the parties want to use? How does allocation of such costs translate into equity, or not?
4. Mortgage. How will the mortgage payments be divided between the owners? Is one person putting down the earnest money while the other pays the mortgage? Will both parties pay the mortgage? Who will be named on that mortgage? What happens if someone doesn’t pay their fair share? How does allocation of such payments translate into equity, or not?
5. Living in and using the property. Will one or all of the owners be allowed to live in the property? If so, what limits on the use should there be? Can the property be rented? What does the rental process look like, and who gets the extra rent money (if there is any)?
6. Tax Benefits. Who and in what percentage will the tax benefits of owning the property be shared?
7. Sale Restrictions. Can an owner freely sell his/her interest in the property? Do the parties want to require a right of first refusal (ROFR)? A right of first option (ROFO)? What’s the process for determining the value of the property? Can a party force the sale of the property? Who will list the property and how will the closing and other costs be split?
8. Marriage and divorce. If the parties aren’t in a relationship with one another, what happens if one of the parties gets married or divorced and their ownership is considered marital property?
9. Death of an Owner. One of the owners dies, now what?
10. Disputes. How are they handled? Do you want to require mediation? Do you want to require arbitration or head to court? Does the winning party get his/her attorney fees?
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Mallon Lonnquist Morris & Watrous, LLC, is real estate transaction and litigation law firm. Craig T. Watrous is a Colorado real estate attorney and partner at MLMW, based in Denver, Colorado. Craig regularly represents clients in the transactions and litigation regarding real estate. Craig can be reached at email@example.com.