What is a Co-Ownership Contract?
A co-ownership contract or co-owner agreement is a legal contract between two or more individuals (or entities) which establishes their rights and obligations in relation to an asset or property which they plan to or currently own jointly or as tenants in common or joint tenants. The purpose of a co-ownership contract is to outline the exact agreements made between the parties regarding their property or asset, from its ownership and use to the way that the costs are shared, how it will be managed and an exit strategy if one of the owners wants to leave the relationship in the future . Co-ownership contracts can be arranged by couples, family members, friends, business partners or groups and can cover any number of property types, from real estate and vehicles to parties in an LLC split and multiple assets within a business. Co-ownership is a popular choice for many people who want to buy an asset or raise money to develop an asset, allowing the owners to share the risk and benefit of any venture. A co-ownership contract spell out exactly how the commitments are split, and by putting it down in writing, it protects all parties involved, so that there are no arguments further down the line.
Essential Components of a Co-Ownership Contract
A co-ownership contract should include a few key elements to ensure that it will be effective. The form of ownership can be a ratio in the form of a fraction or a percentage. Both options represent the exact same proportion and are common ways to express ownership in a contract.
An effective contract will include:
Parties. The contract should explicitly state who the parties are that will be sharing ownership. This section seems unnecessary to some because they assume everyone knows who they are. It can be an important distinction, however, if there are many owners who will be sharing the asset. In that case, specifying the parties can help avoid confusion over who can make decisions regarding the asset.
Percentage. The contract should state what percentage of the asset each party owns. If there are two owners, the percentage will be obvious – 50/50. But it can be complicated when there are more than two owners, so a straight-out percentage basis is normally the easiest way to divide ownership. For example, if three siblings inherit a vacation home, their shares can be expressed in percentages in the contract.
Responsibilities. Depending on the type of co-ownership you are entering into, the contract should also outline the responsibilities of each party. For example, if the co-owners are going to be sharing a house, the responsibilities should include what each owner is responsible for and who will be in charge of maintenance. If the owners will be splitting ownership of a business, then each owner will need to be in agreement about their roles and responsibilities.
Dispute resolution. A strong co-ownership contract will provide a mechanism for dispute resolution. The parties may choose to go to mediation to resolve their differences. The contract should state from where the mediator will be engaged. The venue should also be addressed in the contract. For example, if the owners live in multiple states, the contract should specify whether any disputes should be decided in the owner’s home state or which state will handle the decision.
Other things that should be included in a co-ownership contract can include information about joint accounts; a bailiff to collect rents; who pays expenses; how to sell the asset; taxing authority for part-owners; and how the profits from the asset will be distributed.
Advantages of a Co-Ownership Contract Template
When it comes to drafting co-ownership agreements, a template can be a valuable tool for both novice and experienced lawyers. A well-structured co-ownership contract template offers myriad benefits over the time-consuming process of starting from scratch each time. Firstly, time savings cannot be overstated. The use of a template significantly reduces the time and effort required to draft a contract from the ground up. Legal compliance is another important factor. A co-ownership contract template can ensure that all necessary legal requirements are included and are up to date.
Moreover, a template provides a solid base for future modifications and customization. It can include built-in conditional clauses that can be adapted to the particular characteristics of each case. This adaptability allows for efficient tailoring of agreements without losing the benefits of having previously approved language. Templates can also standardize practices within a law firm, ensuring that all agreements remain consistent and in line with the firm’s regulations and professional standards. Ultimately, using a co-ownership contract template not only makes it easier and faster to create contracts, but it also reduces the risk of overlooking vital elements that could lead to later disputes or legal issues.
Co-Ownership Contract Template Pitfalls to Avoid
One of the primary reasons many co-ownership arrangements fail is because the parties involved don’t sit down to draft a suitable contract. Make sure you’re not making any of these mistakes:
Mistake: Not Mentioning Anything Beyond Basic Vehicles
Often, people may have their eyes focused on their immediate investment, whether that be a luxury convertible or high-performance sports car, but in a decade or so, things may be different. Distinguishing vehicles with specific serial numbers means you can cover them, but what about future investments? When you invest in a co-ownership arrangement, you should definitely address your future purchases.
Mistake: Lack of Clarity About Selling or Buying Additional Vehicles
Will all the other owners have first dibs when it comes to future buys? Or will you have to let them know ahead of time? How will you split the purchase of a new vehicle? Address these questions up front to save yourself and your co-owners from headaches later.
Mistake: Not Outlining the Conditions of Use
Are you going to be allowed to drive the convertible on weekends? Can you bring it out for a long-haul trip? Maybe you want to list out other conditions, such as a minimum number of days you can’t use the vehicle, or nights out. Be as clear as possible because your idea of reasonable use may differ from those of your co-owners.
Mistake: Not Discussing Who Will Pay for What
The upkeep costs for vehicles quickly add up and can include everything from gas and tolls to maintenance and cleaning. Be sure to explain how you and your co-owners plan to split this cost. You should also address details such as insurance and loan payments. If the makers of your contracts don’t have any provisions on these issues, talk with a lawyer for advice.
Mistake: Failing to Talk About Repairs
Who pays for what when it comes to repairs? What happens when there are collision or theft repairs necessary? Will each party cover their respective costs, or will costs be shared equally? Talking about these issues ahead of time could save you both time and money.
How to Customize a Co-Ownership Contract Template
When it comes to creating a co-ownership contract template, you don’t have to start from scratch. Many of the legal websites offer free templates that you can use as a base for your co-ownership agreement. But chances are good that no two co-ownership agreements are alike, and a template will likely need to be changed to fit the circumstances of a specific situation. Here are some tips on how to achieve customization.
To incorporate local laws, trade practices or industry standards that are not able to be specified in customizable templates, legal input may be needed in modifying the original template. For example, the association may find that a state law requires certain or additional provisions or makes a template provision unenforceable.
Local and state laws may also dictate that some provisions of a template be removed or revised. The laws in one state regarding rights and remedies of owners are very different from another state. These local conditions guide how to create a practical customized co-ownership contract template that meets the requirements of the law while meeting the needs of the community .
As previously mentioned, industry standards or trade practices may influence the way in which a co-ownership contract template is modified and customized. In certain industries, vendors are required to perform due diligence or be licensed or certified in a specialized area in order to legally do business. Although a template may provide in well-established detail all necessary elements for a co-ownership agreement, certain qualifications may need to be provided if these are identified as necessary.
In any endeavor, following best practices can save time, money and other resources. If an association is interested in using a stated form of purchase agreement or contract, doing so allows the use of terms that are consistent with other members of the same class of association and reiterates the industry standards of other members.
There is no shortage of templates readily available online. However, these agreements are of little value unless they are revised to reflect the party’s individual circumstances and business needs.
Situations when Professional Legal Advice is Key
It is always recommended that a lawyer be consulted when drafting a co-ownership contract. Co-ownership business arrangements are often complex, as they can involve a combination of commercial and residential entitlements and obligations, occupier rules, service contract arrangements, dispute resolution mechanisms and governance measures. For this reason alone, it is critical that document is drafted by someone familiar with the many permutations of possible ownership structures and internal rules that may be required to suit your particular situation. A lawyer who specializes in co-ownership arrangements can analyze the relevant issues, including: The legalities of the rights and responsibilities of owners The rights and obligations of non-owning occupiers The implications of contractual pitfalls Dispute resolution procedures Regulatory and environmental compliance matters Tax considerations There is nothing worse (or more expensive) than having to go back to amend or redo a co-ownership contract due to an oversight or mistake. Solidifying the legal foundation of your co-ownership from day one will pay great dividends down the road.
Conclusion and Additional Resources
In conclusion, a well-drafted co-ownership contract can be an important tool for protecting the interests of both co-owners and ensuring that the property is maintained and any issues are addressed in a timely manner. It is important to have the co-ownership contract reviewed by an attorney to ensure that it is enforceable and meets the specific needs of the parties.
There are a number of resources available online for creating a co-ownership contract template . Some websites, such as Co-Ownership of a House, provide sample co-ownership agreements that can be used as a starting point for drafting a contract. Other websites, such as LegalZoom, offer online legal services that can help with drafting legal contracts.
It is always recommended to use a reputable lawyer to draft the legal contract, as they can provide legal advice specific to the situation. An attorney can also ensure that the co-ownership contract is tailored to the specific needs of the parties and complies with all relevant laws.