Co-ownership of properties is a very common financial arrangement in real estate. With two or more persons involved in a purchase, their combined buying power can expand the number of properties that they can pursue. One party involved may also provide a higher credit score or more substantial assets that could win better loan terms.
Co-ownership lowers the business risk for both partners because it becomes a shared risk, rather than one which must be borne by a single person. However, these are long-term business relationships (even those between family members), and time can change the motivations of the people involved. Indeed, one partner may decide they wish to exit, and has the legal right to do so (more on that below.) Much can go wrong in a co-ownership partnership, if the possibility of these future issues arising is not accounted for in the initial partnership agreement.
How co-ownership can become problematic
Co-ownership arrangements usually start out amicably enough, but there is always a potential for relationships to sour, especially if important understandings between partners have only been informally agreed to and not committed to a formal written contract. Like any other business, issues will arise during the normal operation and administration of the property, each of which presents an opportunity for disagreement. Goals for the property, managing expenses, how responsibilities are to be divided, and tenancy selection can all become sticking points between co-owners if they haven’t been thoroughly discussed beforehand.
The best way to avoid such rifts is to consider the inevitable issues before entering into co-ownership, and establishing a written legal agreement which clearly defines the roles and responsibilities of each partner.
When co-ownership must be dissolved
If the time comes when it’s best for both parties to dissolve the co-ownership, but a fair division of assets cannot be agreed upon, the party that wishes to exit the partnership has the right to file a lawsuit for a legal partition. In a legal partition, either or both of the two parties request the court order the property to be sold. This litigation would be filed by an attorney in the state and county where property is located.
When the case is brought before the court, the judge will usually appoint a referee to sell the property. An accounting is also usually determined by the court, involving an analysis of property expenditures made by both partners, improvements made to the property, and the payment of taxes, mortgage payments and other expenses. After determining the accounting, the court usually divides the proceeds of sale among the co-owners to balance the equities, and may also award attorneys fees to one or both of the partners.
Partition is usually the last resort for partners that are unable to reach agreement, and results in additional expense to the partners. Often times a written agreement drafted by an experienced real estate attorney at the formation of the co-ownership arrangement will help resolve disputes and avoid the need for a costly partition action.
For the best legal advice on co-ownership
If you have questions about co-ownership agreements or any other aspect of real estate law, contact the highly experienced attorneys at Poniatowski Leding Parikh Law Corporation. You can count on receiving thoughtful, researched advise and, if necessary, representation to help you defend your rights regarding the matter in question.