This is a presentation of a brief summary of the primary factors which should be addressed by individuals (or multiple entities) when they plan to own real property jointly. Like any form of business relationship, it is far more efficient to address these issues and memorialize your understanding in writing at the outset of your ownership relationship to avoid unnecessary costs, delays, disagreements, and even litigation down the road. Please note that this is only a summary of the main issues involved in entering a joint ownership agreement. More discussion and elaboration is surely required.

  1. Relative Ownership Interests. You will need to clarify what undivided fractional (percentage) interest of the real property is owned by each individual.
  2. Property Description. Of course, you will need to provide a legal description of the property which is the subject of the co-ownership agreement.
  3. Taxes; Encumbrances.
    1. Are there any existing encumbrances to be assumed by the co-owners? Presumably, all taxes and encumbrances will be shared by you in proportion to your relative ownership interests. This (or any other understanding you have) should be clarified in the agreement.
    2. In the event an owner does some act that causes an unwanted encumbrance to be levied against the property, the agreement should set forth the obligation that the owner causing the encumbrance is responsible for its removal. In addition, the other owner should be granted the right to elect to remove the unwanted encumbrance and seek reimbursement from the owner at fault (usually together with an interest charge).
  4. Name. Will the co-ownership operate under an assumed name? What name?
  5. Voting. You will be making decisions together on whether to sell the real property, whether to make capital improvements to it, and whether to take out additional financing utilizing the property as collateral, among other things. Typically, where there are only two co-owners, the question is whether one should have control over all determinations if one holds a greater percentage than the other. With this in mind, what should be the voting rights (e.g., should unanimous approval be required or simply majority approval)?
  6. Expenses; Revenue Sharing; Disbursements.
    1. Again, presumably expenses and revenues generated from the property will be shares in proportion to your relative ownership interests in it. You will also need to determine under what circumstances revenues will be distributed or retained.
    2. In the event one owner is delinquent in making timely payments of amounts owing under a loan, for improvements or for repairs, you should agree in advance on what rights the non-defaulting party has. For example, the non-defaulting party should be able to pay the amounts owing and to seek reimbursement, together with interest and possibly an additional late fee of some sort.
  7. Management; Accounting. You should define who is responsible for the physical management of the property, including repairs and maintenance, and who is responsible for accounting and other financial matters.
  8. Sale of Ownership Interests. Most co-ownership agreements contain a restriction on the transfer of an owner’s interest. That restriction typically takes the form of a right of first refusal, together with an obligation that any third party entering the arrangement by purchasing an interest must agree to be bound by the terms of the existing owner’s agreement.
  9. Buyout of Owner’s Interest. Many joint ownership agreements provide that an owner has the right to purchase the other’s interest upon the occurrence of certain stated events. Such events can include the death or disability of an owner.
  10. Purchase Price; Payment. Typically, the purchase price of an owner’s interest is based on fair market value of the owner’s interest, less a proportionate share of joint indebtedness of the owners secured by the property as agreed, or, in the absence of an agreement, as determined by appraisal. You will need to agree on the appropriate payment terms (i.e., payment in full at closing; percentage down with the balance payable over a preestablished number of years; also, payments be due on a monthly or annual basis; applicable interest rate). Should there be security provided for any unpaid balance of the purchase price?
  11. Resolution of Disputes. The agreement should provide a method for resolving disputes. Options include mediation, arbitration and litigation. You should also determine in advance whether the prevailing party in any such dispute should be able to recover its dispute resolution costs and expenses for the other party.