|Divided and Undivided Co-Ownership|
When looking to buy a condo, there`s a question that is often asked: is it a divided or undivided co-ownership? The answer to this question is crucial since depending on what type of co-ownership is involved, the legal and financial implications will not be the same.
What is the difference between a divided co-ownership and an undivided co-ownership?
Although these two types of ownership are both conceptually related to the concept of several persons owning an immovable, they must be differentiated, especially due to the legal frameworks that are specific to each of these property regimes.
DIVIDED CO-OWNERSHIP (Condo)
The divided co-ownership, commonly known as condominium, is a form of ownership that seeks to legally and financially separate the owners from each other. It is inevitably subject to a declaration of co-ownership. This notarized agreement governs the relationships between the co-owners and the administrators in relation to the immovable. The declaration of co-ownership is a fundamental legal document for this type of co-ownership. Moreover, it is through its publication in the land registry that the syndicate of co-owners is created.
In order to create a divided co-ownership, the immovable is separated into private and common portions which have their own lot number assigned to them during the cadastral survey. Each newly created private co-owned lot then becomes its own individual immovable property. The co-owners privately own their private portions (the apartment, and sometimes a parking space or a storage unit) and jointly own the common portions of the immovable (for example: major equipment of the building, lobby, pool, parking lot, elevators, communal rooms, etc.) based on a percentage established under the terms of the declaration of co-ownership. These common portions are managed by the syndicate of co-ownership, who has the responsibility of preserving them.
The legal framework of divided co-ownership guarantees co-owners complete freedom to dispose of their property. They can rent or sell their private portion without having to obtain prior approval from anyone. In addition, they can take out a mortgage on their unit, and the other co-owners will not be held responsible for it in any way.
An immovable is owned in undivided co-ownership when it is owned by a group of people without having been materially divided into separate lots (private and common portions). They are thus concurrent owners of the immovable in relation to the size of the share they acquired.
The concept of undivided co-ownership is very broad; it applies just as much to spouses who decide to buy a house, as it does to family members who inherit a property, or three people who decide to buy a triplex together. In all of these cases, they are all undivided co-owners.
As opposed to divided co-ownership (condo), no cadastral survey is needed. Each co-owner possesses an undivided right of ownership in the immovable which holds his unit. This co-owner is therefore part owner of the unit he dwells in, as well as the units occupied by his immediately surrounding neighbours (the other co-owners of the immovable).
AN INDIVISION AGREEMENT
Whereby the divided co-owners are necessarily subject to a notarial agreement (declaration of co-ownership), the undivided co-owners are exempted from this requirement. However, the existence of such an agreement often makes all the difference. In fact, if no agreement was reached between the co-owners, none of them can claim an exclusive right to occupy a particular portion of the immovable. Furthermore, given that the Civil Code of Québec has few regulations to the rights and obligations of undivided co-owners, the latter are thus exposed to many risky situations.
The solution : an indivision agreement signed by all undivided co-owners in order to create what the practitioners call an “organised undivided co-ownership”.
An indivision agreement has many benefits, notably that of describing the portions reserved for the exclusive use by certain co-owners, such as the apartments or parking spaces. It can also determine the rules that govern the operation and administration of the co-ownership, as well as harmonize the relationships between undivided co-owners. While it may always be renewed, the indivision agreement may not exceed thirty (30) years.
Finally, it should be noted that in order for the indivision agreement to be enforceable against all new co-owners, it must be published in the land registry, unless the rights found in that agreement were transferred and assumed by the new-owner.
OBLIGATIONS BINDING ON ALL CO-OWNERS
Given the mere nature of this type of ownership, the co-owners are faced with many joint obligations. Such is the case with municipal and school tax accounts which are jointly and severally the responsibility of the undivided co-owners.
In an undivided co-ownership, financial institutions generally require the intervention of all co-owners in order to grant a mortgage. From that moment on, the co-owners are mutually held responsible for the mortgage loan contracted by each of them.
Without the establishment of an indivision agreement foreseeing safeguards that will guarantee the payment of these various obligations, this form of ownership can be risky for the co-owners should one of their neighbours become insolvent.
In light of this, it is appropriate to know that the National Bank of Canada and Caisses Desjardins currently offer loans called “limited liability”, which are guaranteed separately on the undivided shares and occupancy rights of each respective co-owner. In this situation, the intervention of the other co-owners is not required and the creditor may not exercise its remedies against the other undivided co-owners. These loans are granted under certain conditions; that of publishing in the land registry an individed agreement containing these appropriate safeguards.
In situations of undivided co-ownership with someone other than one’s spouse, it is impossible for the landlord (owner) to repossess its residential dwelling. However, this situation is only in favour of the tenant, and does not apply to the sublessee.
To learn more about the advantages and disadvantages of undivided co-ownership, consult the column of Mtre. Ginette Allard, notary.
In order to ensure that the drafting of an indivision agreement clearly establishes the responsibilities and preserves the rights of all parties, it is important to consult an experienced notary in this field.
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