Selling a House With Co-Ownership
While home affordability makes co-ownership more appealing, it’s important to understand how it affects selling your home.
By Emily Southey | 7 minute read
If you co-own a property that you are looking to sell, you’re in the right place. Below, the experts at Wahi dive into the topic of selling a house with co-ownership (as the process is a little different than a typical home sale). Continue reading to learn more about how co-ownership agreements work, the different types of co-ownerships, and some expert tips on how to sell a house with co-ownership.
What Is a Co-Ownership Agreement?
A co-ownership agreement is an agreement between two or more owners of a property. The agreement outlines the relationship and expectations of each party in relation to the property. Co-owners can be individuals (spouses, friends, or family members) or corporations, and they can purchase a property for many purposes (for example, to live in or to rent out for investment purposes). Co-ownership agreements usually include key information, such as each owner’s individual rights and responsibilities, what portion of the property each owner owns, to whom an owner’s rights are transferred in the event of their death, and more.
In Ontario, there are three main categories of co-ownership:
- Occupying co-ownership: Where both co-owners occupy the property;
- Non-occupying co-ownership: Where the co-owners do not occupy the property, and instead, sell or rent it out as an investment; and
- Hybrid co-ownership: When the property is owned by co-owners, and one owner resides at the property while the other is a passive investor.
The Benefits of Co-Ownership
Now that you know what a co-ownership agreement is, you might be wondering why someone would enter into one. There are many circumstances and reasons that homebuyers choose to co-own properties. For example, you might find a co-ownership agreement useful if any of the following situations apply to you:
- You decide to purchase an investment property with family or friends, whether for residential, investment or vacation purposes, such as a cottage or timeshare;
- You and your business partner decide to purchase a property together for commercial or investment purposes;
- After a divorce or separation, you and your ex-spouse decide to rent out your property rather than sell it;
- You are preparing a will or conveyance by a trust to multiple people as co-owners; or
- A family property is being passed down to future generations.
Beyond the situations listed above, there are also several reasons that someone would choose to enter into a co-ownership agreement. For example, buying a house with multiple people is more affordable than buying a home on your own. It allows you to pool resources and afford a home that you may not have otherwise been able to afford. Similarly, co-ownership might give you access to other, more desirable neighbourhoods. Certain areas may be out of your personal budget, but when you’re combining your budget with others, you might be able to afford a house in a vibrant, up-and-coming area that can lead to better returns.
“Co-owners can be individuals (spouses, friends, or family members) or corporations, and they can purchase a property for many purposes (for example, to live in or to rent out for investment purposes).”
The Different Types of Co-Ownership
When entering into a co-ownership, the co-owners will need to decide what type of co-ownership agreement they want to draw up. In Ontario, the two main ways that multiple people can own a single property are joint tenancy and tenants-in-common. In the case of joint tenancy, the co-owners have identical, equal interests in the property. Oppositely, with tenants-in-common, co-owners have a proportionate interest (designated as a percentage) of the property, allowing for unequal ownership interests. We explore these two types of co-ownership in more detail below.
In a joint tenancy agreement, each co-owner has identical, undivided interests in the property. In other words, the co-owners own the property as a unified whole, with each party holding an equal interest. For a joint tenancy, four unities must exist: unity of title, unity of interest, unity of possession, and unity of time.
Beyond the fact that joint tenants have equal interests in the property, another key difference between joint tenancy and tenants-in-common relates to the right of survivorship. If one of the joint tenants dies, the surviving joint tenant automatically becomes the owner of the property regardless of what is stipulated in the deceased’s will. Joint tenancy is a method most commonly used by spouses.
Meanwhile, tenancy-in-common is when each co-owner holds a proportionate interest (written as a percentage) of the property. This proportionate interest is to be determined by the co-owners and outlined in the co-ownership agreement. However, unlike joint tenancy where the co-owners hold equal interests, tenants-in-common often hold unequal interests. Further, in the event that one co-owner dies, their percentage of ownership is distributed according to their will (it is not automatically transferred to the other co-owner as with a joint tenancy agreement).
Tips for Selling a House With Co-Ownership
If you’ve entered into a co-ownership agreement, then you might be wondering how it works when you decide to sell your home. Luckily, we’ve got you covered. Keep reading to discover some expert tips on how to sell a house that has multiple owners.
1. Ask yourself the following questions
Before putting your co-owned home up for sale, take some time to answer the following questions:
- Who gets what portion of the proceeds from the sale? Not all types of co-ownerships (that is, tenants-in-common) give co-owners equal interest in the property. Therefore, not all home sale proceeds will be split evenly. To determine how much each co-owner will receive from the proceeds of the sale, be sure to carefully review your co-ownership agreement. Have a real estate attorney review your agreement and make any necessary changes to ensure this information is clearly outlined.
- How will home sale costs be divided? Selling a home doesn’t just make you money, it also costs money. For example, as sellers, you will need to pay for staging costs, legal fees, realtor commissions, property repairs and maintenance, taxes, and more. Make sure you keep a record of all costs incurred and clearly divide them up to avoid conflict later on.
- Does your house involve trust ownership? Creating a living trust is a common reason that someone enters into a co-ownership agreement, as it can make it easier to hand a property down to a child or relative after an owner passes away. That said, selling a home with trust ownership can be complicated, as you will need to give the person who is conducting the closing a copy of the trust certificate.
2. Hire a realtor to help with your jointly owned house sale
Our next tip is to hire a professional realtor to help you sell your jointly owned home. Hiring a realtor is usually recommended, whether one or multiple owners are selling a home. In the case of a co-ownership, we recommend choosing a realtor who does not have ties to either owner. A neutral third party is usually the best option to avoid conflict.
3. Understand the tax repercussions of selling a co-owned home
The amount of tax you will end up paying when selling a property that has multiple owners will ultimately depend on the ownership structure that was set up when you purchased it. For example, when you sell a house under a joint tenancy, both parties will likely need to pay capital gains tax. However, since you only own half the property, the tax you owe will be split up. (Of course, if you are a married couple and file a single tax return, you won’t benefit from this. But if the co-owners file separately, they will only need to pay capital gains tax on their share of the property.) Meanwhile, for a tenancy-in-common, tax obligations will depend on the size of their property ownership. Typically, each co-owner will owe capital gains taxes proportionate to their ownership percentage outlined in the co-ownership agreement.
Frequently Asked Questions
Can you sell your portion of the house to your co-owner?
Unless your co-ownership agreement specifically restricts you from doing so, you should be able to sell all or part of your interest in the property to anyone you want to, including your co-owner. Be sure to read the co-ownership agreement carefully or have a lawyer review it to affirm your rights.
Who manages the monthly maintenance of a house in a co-ownership?
This is up to the co-owners. Most co-ownership agreements will outline the rights and responsibilities of each co-owner. This means that the agreement should clearly state which co-owner is responsible for managing the monthly maintenance of the property, as well as how the costs of monthly maintenance are split among the co-owners.
If a rental property is co-owned, can the rent the tenant pays be split up?
Again, a co-ownership agreement will outline the rights and responsibilities of each co-owner. If the property being purchased is a rental property, the agreement should also stipulate how rent is collected, who it is paid to, and how it is split between the co-owners. Therefore, if you want to know how the rent that a tenant pays will be split up, it’s best to refer back to your co-ownership contract. If navigating your co-ownership agreement becomes difficult, you can always hire a co-ownership property manager to oversee the functioning of your property.