An increasing number of people are entering the housing market by buying jointly with a friend or relative. Families are also buying cottages or rental properties together. For many, it enables them to enter the market while prices are high and decreases the individual risk and day-to-day responsibility of such an investment.
However, as has been often said, it’s dangerous to mix business with pleasure. Many co-owners don’t consider and plan for the possible curves that life can throw, such as a co-owner:
- getting married;
- transferring out-of-province;
- losing their job such that they cannot pay a mortgage; or
- not pulling their weight to repair the roof after a storm.
There may be other situations like bad tenants who do not pay their rent or exhibit some other negative behaviour. Where a parent buys a home with their child, the child may go bankrupt, have a marriage breakdown or the parent may need extra money to buy a car. The possible scenarios are numerous and can cause not only financial turmoil but also ruin the relationship.
To protect their interests, a co-owner should set out the decisions that will apply for possible future scenarios in a co-ownership agreement. Topics may include:
- How taxes, maintenance and repairs will be paid;
- Tax considerations including:
- who should be named on title and how this affects capital gains on sale of the property;
- whether the property should be owned in the individuals’ names or through a corporation to reduce taxes;
- How and when the property is to be sold and how proceeds will be divided; and
- Estate planning provisions for when a co-owner dies.
Thus, it is wise to consult professionals up front to get things structured properly to avoid serious foreseeable problems in future.
Download the PDF: Concepts Newsletter – Spring 2011