What is a Joint Ownership Agreement?
A Joint Ownership Agreement is a joint ownership situation where two or more parties hold rights or interests in property, and it is essential for clarifying the management, control, and decision-making powers of each party. Through the Agreement, owners divide property in a way so as to avoid future disputes between themselves or to clarify the details of ownership, including the share of income and gains and the costs of maintaining the property . Joint ownership agreements can be used in a number of situations: Any asset or piece of property that one party does not want to take all responsibility for by themselves can be co-owned through a joint ownership agreement.
Advantages of a Joint Ownership Agreement
A joint ownership agreement is a powerful tool for anyone considering going into business with another individual. While the case of jointly-owned real estate and other assets can be handled through co-ownership agreements, going into business with a partner requires special consideration.
Because a partnership can create both legal and financial exposure for each partner, the joint ownership agreement is considered an indispensable tool for any partnership. If you’re in a partnership with someone you trust, the two of you may not have considered drawing up a joint ownership agreement to protect the business from unnecessary disruptions and financial problems that could cause it to fail or put your personal finances at risk.
The simple fact is that having an ownership agreement in place can go a long way toward eliminating conflicts that could potentially ruin business and friendship or business and family relationships. In addition, jointly owned businesses may be extremely difficult to sell if the owner dies without leaving behind instructions, or if that owner decides to cash out. A joint ownership agreement offers a path to resolving such issues quickly and easily.
Other benefits of having a joint ownership agreement in place for a business includes the fact that it creates a clear succession plan for the business in the event that one of the owners dies or becomes incapacitated. Owners may also use joint ownership agreements to clearly outline their predetermined salary, benefits and bonus structures for their partnership.
Finally, joint ownership agreements allow business owners to clearly clarify their ownership percentages. When there is a change in business capacity, such as an owner who decides to leave, the remaining owner or owners can bring in a new partner at a fair amount due to the predetermined ownership percentage.
Key Features of a Joint Ownership Agreement Template
When drafting a joint ownership agreement template, it’s important to include clear and concise language that provides a framework for the co-ownership arrangement. Initially, the agreement should clearly identify the parties involved in the agreement. Where there are three or more owners, the full names, addresses, and share of interest should be outlined. The next essential element is a description of the property in question. A thorough property description will include not only a physical description but also any title or encumbrance information. The third component of a joint ownership agreement template is an outline of the co-owners’ rights and obligations. Important features to address may include the following: How the proceeds from the sale of the property will be divided; How the property will be handled in the event of a divorce, death, or bankruptcy of a co-owner; A system for maintaining the property in a responsible manner; The amount and method of funding any needed maintenance or repairs; Procedures for handling any rent, lease, or other income derived from the property. In addition to the above elements, a joint ownership agreement template should also address the financial contributions to the property by each party. This may include amounts for the initial purchase price as well as closing costs and expenses related to the transfer of the property. However, it may also include future obligations such as mortgage payments, taxes, insurance, repairs, and similar items. A specific time period in which the contributions must be paid should be included. The last key component of a joint ownership agreement template is a procedure for dealing with disagreements between the co-owners. This includes the date by which the co-owners must meet to discuss any issues or concerns as well as how the co-owners will resolve the disagreement. Some co-owners may want to allow themselves to settle any disputes outside of court, while others may prefer to have a provision that allows for the filing of legal proceedings.
How to Create Your Joint Ownership Agreement: A Step-by-Step Guide
When drafting a joint ownership agreement it is common practice to first review existing, professionally drafted templates in order to establish a baseline, then tailor the agreement to the specific facts of your situation. The following is an overview of the process to adopt when drafting a joint ownership agreement using a template: Client & attorney meet to discuss general parameters of the agreement (what assets are to be jointly held, how is the joint ownership to be managed, etc.). Attorney reviews template joint ownership agreement and determines whether the template is suitable to be repurposed, or if a custom document should be drafted. If the template is suitable for repurposing, or a custom document is to be drafted, attorney prepares a preliminary draft. Client reviews the preliminary draft and discusses changes, additions, deletions, etc. with attorney. Attorneys makes changes to preliminary draft. Client reviews latest draft and discusses changes, additions, deletions, etc. with attorney. Attorney makes any agreed upon changes and provides a final draft to client.
If a joint ownership agreement involves real estate, the new owners must execute a New Owner’s Certification which transfers the title of the property to the new owners. The New Owner’s Certification is to be recorded with the property deeds at the County Clerk or other proper recording office.
Example of a Joint Ownership Agreement Template
As a resource for our readers, we have included a sample joint ownership agreement template below. This is a simple and general form for a joint ownership agreement, and is provided free for your use and customization to fit your own needs.
THIS JOINT OWNERSHIP AGREEMENT ("Agreement") is made and entered into effective as of the ___ day of ___________, 20__, between each of the undersigned ("Owners").
I. SUMMARY
1. Preamble.
2. Purpose. The Owners desire to enter into an agreement outlining their rights and responsibilities as joint owners of the [insert item(s) to be owned in common, e.g., home, cabin, corporate stock, etc.]. Owners have executed this Instrument to clarify their interests and to set forth the terms and conditions upon which may be necessary for the joint ownership, use, maintenance, and/or other management of said property among the Owners.
II. JOINT OWNERSHIP
1. Purchase Agreement. The Buyers of the Property are [insert names of buyers] and are described in the Agreement for Sale from [insert Seller’s name] to [insert names of Buyers].
2. Interest. Each Buyer of the Property listed in Exhibit A collectively are the "Owners" of the Property, each subject to the rights and obligations set forth in this Agreement
III. MAINTENANCE
1. Shared Responsibility. Owners accept the obligation for all expenses, which arise due to the ownership of the Property including, but not limited to, mortgage payments, taxes, insurance, maintenance, utilities, snow removal, landscaping, cleaning, etc. However, Owner will not be responsible for costs or expenses of another Owner without the consent and authorization of all parties.
IV. USE
1. Property Reservations.
(a) Use of common facilities within the Property requires reservation (both verbal and in writing) at least [insert minimum notice of intent to use facility, e.g . , 24 hours] in advance of the intended use.
(b) Individual usage of the property shall be determined by the following [insert terms for use, e.g., first to book use has priority].
(c) All individual usages take priority over any proposed group usage.
V. TRANSFER OF INTEREST
1. Right of First Refusal. In the event that any party wishes to sell or otherwise transfer his or her interest in the property (in whole or in part) the other Owners agree to afford the selling owner(s) the right to offer the selling interest to the remaining owners on the same terms as those offered to another party.
2. Transfer or Sale. An Owner may sell or transfer all or a portion of his/her interest to a third party without the consent of the other Owners provided the third party shall agree to be bound by the terms and conditions of this Agreement.
VI. DEFAULT
A. Default Remedies. Upon default by one or more Owners under any of the terms or conditions of this Agreement, all Owners shall be entitled to take the following actions:
All Owners (or other parties having an interest in the property) agree that no action for partition or sale shall be commenced until at least [insert terms, e.g., until the property is fully paid for and then only with the consent of majority of Owners].
VII. MISCELLANEOUS
- Waiver. No waiver of any provision herein shall be deemed to have been made unless in writing and signed by the party against whom the same is charged.
- Amendment. This agreement may be amended or modified only by an instrument of equal dignity in writing and signed by each of the parties hereto.
- Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the [insert governing state].
- Successors. This Agreement shall bind the heirs, executors, administrators, successors, and assigns of each of the parties hereto.
Dated effective above.
Legal Considerations and Common Questions
The legal considerations in drafting a joint ownership agreement can be tedious. The contracting parties should consider how the agreement might hold up legally and whether the structure is advantageous to their best interests, now and in the future.
The most common issue is that the agreement fails to provide for an alternative method of deciding disputes or for amendments, if it becomes necessary to do so. Sometimes, the parties include a complicated dispute resolution process in the event of disagreement. Not surprisingly such mechanisms often become unwieldy and affordable when the parties have reached a point of crisis. More often, the parties rely on the ultimatum or constructive refusal to cooperate means of conflict resolution. The parties may find it does not work once their interest in each other or their friendship is over.
Legally speaking, it’s a good idea to include the dispute resolution mechanism of your choice in the agreement, but another option is to draft the agreement so there’s recourse in the usual court of law. If the business doesn’t have sufficient value, resorting to the court may be affordable. Nevertheless, in most cases, a provision for conflict resolution that presumes the parties will list the asset for sale is prudent.
Another common issue with a joint ownership agreement is a failure to adequately provide for the possibility that one owner can and should be forcibly removed once a specified purpose is served or the "joint-venture" has expired.
The legal presumption of joint tenancy (as opposed to joint ownership) is that co-owners hold equal authority over the business. This means an action by one or both of the owners could affect the value of the partnership, even when not based on the best interests of the business or partnership. It does not seem fair for one party to veto decisions that affect value or the ability to manage affairs.
Joint ownership is often established with the tacit understanding that the partners will cooperate in principle, without the actual scheduling of time to attend meetings and discuss issues. A free-wheeling informal business arrangement may seem appealing, but this informality can jeopardize value after the relationship has broken down because of failure to properly document things like (but not limited to) authority regarding the management of the enterprise and exit strategies.
FAQs
For the first few years of co-ownership, will one party be on the hook for taxes? How are taxes handled in the agreement?
In most cases, the party with exclusive occupation of the dwelling will be responsible for the taxes. It will be a matter of including that right to deduct the taxes in the co-ownership agreement. This way it’s clear from the beginning.
Where do I get a certified copy of the co-ownership agreement?
The co-ownership agreement is registered on title, which means it is part of the Land Title Registry in your province. You can obtain a copy of your registered agreement from your provincial Land Title office.
Is a co-ownership the same as a joint tenancy?
A co-ownership agreement differs from a joint tenancy. A joint tenant is a co-owner of a property, like a married couple . Each spouse on title has an equal right of possession over the whole dwelling. This means, legally speaking, that each spouse is 100% owner of the property, and can decide to sell their share without the other spouse’s consent. A co-ownership agreement allows two or more people to purchase a property together and decide amongst themselves how the property will be divided, whether it’s by area of the home, such as upstairs/downstairs, or by rooms, like bedrooms. A joint tenancy does not require an agreement; it is the default ownership structure when two people buy a property together.
My co-owner is going to go bankrupt? How will this affect my co-ownership?
The co-ownership agreement covers any number of situations, such as bankruptcy. If one party goes bankrupt, the agreement will protect the other party from losing their interest in the property.