Pitfalls to Avoid in Joint Property Ownership

Owning real estate with an investment partner is a popular choice among real estate investors, but this strategy comes with its own set of challenges. While there are many advantages to sharing ownership of properties with a partner, clear communication in agreements is the true key to success.

What is “tenancy in common”?

“Tenancy in common” is the most common title on a property shared between real estate investors. In this arrangement, two or more people own shares of a property, which can be equal or unequal. Each owner’s share can be sold, transferred, or passed down through inheritance. When one owner passes away, their shares of the property get passed to their estate, or however the partners have outlined in their agreement.

Four common pitfalls and solutions to navigating joint ownership in real estate

1. Financial disputes over contributions and expenses

• Pitfall: One of the most common issues in joint ownership is disagreements over each party’s financial contributions.
• Solution: Before purchasing, create a clear financial agreement outlining each person’s responsibilities for the initial down payment, mortgage payments, taxes, and ongoing expenses.

2. Disagreements about property maintenance and upkeep

• Pitfall: When two or more people own property together, there are bound to be disagreements about to-dos such as grass-cutting schedules and which appliances to choose when a replacement is needed.
• Solution: Create a maintenance schedule and a repair budget that everyone agrees upon. Discuss what’s considered essential maintenance versus optional upgrades and decide in advance how costs will be split.

3. Lack of legal documentation or ownership agreement

• Pitfall: Many co-owners enter joint ownership without a formal agreement, relying on verbal promises and trust.
• Solution: Always formalize the ownership structure with a written agreement that includes ownership percentages, financial responsibilities, rules for selling or renting the property, and a dispute resolution process.

4. Conflicts over inheritance and succession

• Pitfall: Inheritance and succession can become complicated. Without clear terms, families can face disputes over who inherits the property or whether one party can assume full ownership.
• Solution: Establish a clear succession plan in writing and consult with an estate planner if needed. For tenants in common, consider setting up a will or trust to specify what should happen to your share of the property upon your passing.

Open communication and clear agreements are critical

Joint property ownership can be rewarding and financially beneficial if all parties are on the same page.

We always recommend having an exit strategy in place (for example, the option for one party to buy out the other) if goals change between one of the partners.

Taking the time to formalize roles, responsibilities, and plans can protect everyone’s interests and make shared property ownership a smooth and successful experience.

We are here to help

If you are looking for an experienced real estate lawyer to help you close your real estate investment deal, McMurter & Associates has the experience to help you succeed.

McMurter & Associates has practiced real estate law for Durham Region residents for over 30 years. If you have questions, please reach out to your real estate lawyer, who will be happy to help. To meet with a member of our firm, send us an email or call us at 1-800-756-7138 or 289-278-0934 to schedule a consultation.