Divided or undivided co-ownership: what is the difference?

Are you interested in buying a condominium? One of the first things to consider when investing in this type of property is to determine the type of condominium that interests you: divided or undivided?

These two types of co-ownership have their own characteristics. Each of them also confers certain rights, but also certain obligations, the implications of which you must understand. When choosing your future residence, you need to know how to distinguish between them to ensure the type you choose meets your needs and preferences.

Divided co-ownership: the most commonly known of the two

When we talk about condominiums in general, most people immediately think of divided co-ownership. This is undoubtedly the most well-known type of condominium, the one to which the famous term "condo" generally refers..

A divided co-ownership is, as its name indicates, a building that has been divided into several parts, some of which are private and others are common. Acquiring a divided condominium means buying a private part of the building (fraction), an apartment that will be for your exclusive use. Your apartment will therefore have its own lot number (cadastral identification) and you will also have your own municipal and school tax accounts.

You will also be entitled to sell your apartment or to make minor changes without the approval of the other co-owners, as long as these changes do not affect the building’s structure and respect the established cohabitation rules.

In addition to your private portion, the purchase of a divided co-ownership also includes the sharing of the various common portions of the building in the form of a quota (%). These are for the use of all the co-owners (or some of them in the case of a common area with restricted use). They are identified in the Declaration of Co-ownership and usually include courtyards, balconies, stairs, elevators, hallways, etc.

However, some areas that are generally common may be considered private if the Declaration of Co-ownership so states. For example, parking lots and storage spaces may be considered private, a balcony may be for the exclusive use of the owner of the adjoining apartment, etc.

The Declaration and the Syndicate of Co-ownership

Two important characteristics of divided co-ownership are the presence of a co-ownership syndicate, which is responsible for the administration of the common portions of the property, and a legislative document that acts as a contract between the various co-owners of the building: the Declaration of Co-ownership.

This document, published in the Land Register, establishes the property's rules of administration and cohabitation. It thus promotes mutual understanding and good relations among the co-owners, who must respect its clauses. An owner who does not respect any of the obligations mentioned in the Declaration of Co-ownership may be subject to consequences ranging from a simple warning to an injunction.

The Declaration of Co-ownership is a three-part document: the act of co-ownership, the by-laws of the immovable, and the description of the fractions. 

The contingency and the self-insurance fund

Since 1994, the law has required condominium corporations to set up a contingency fund in case of unforeseen circumstances. The purpose of this fund is to anticipate the financing of certain work that may be required in the common areas of the building. This sum of money represents a minimum of 5% of the common expenses paid by the co-owners of the building. A prudent co-ownership will however allocate a larger proportion to its contingency fund.

From April 2022, divided co-ownerships will also have to set up a self-insurance fund, which will act as a monetary reserve for the payment of insurance deductibles in the event of a claim. The accumulated sums will become the property of the syndicate and the board of directors will have to assess annually the minimum contribution of the co-owners to this fund when adopting the annual budget.

Undivided co-ownership: a very broad concept

Unlike divided co-ownership, undivided co-ownership is not physically separated into separate private and common portions. If you decide to purchase this type of property, you will be acquiring a percentage of an entire building. You and the other co-owners will therefore have a right of ownership over the entire building.

In the case of undivided co-ownership, a single lot number is assigned to the entire property. School and municipal taxes are common to all the co-owners who must assume the costs, in addition to the various charges of the immovable, in proportion to their ownership of the property.

The notion of undivided co-ownership is very broad and can include several situations. A classic example of how undivided co-ownership works is when a couple buys a new home. By co-signing the documents, the spouses become co-owners of the building. The shares held by each will be presumed equal (50% each in this example) unless the deed of sale stipulates otherwise.

Undivided co-ownership can also arise from an estate when several people inherit an immovable. They then become owners of a percentage of the property, depending on their family relationship (as provided for by law) or the specifications of the will.

Three friends buying a triplex together would also be considered undivided co-owners.

The Indivision Agreement

While a declaration of co-ownership is mandatory for divided co-ownerships, undivided co-ownerships are not required to have a notarized contract. The indivision agreement is optional but remains strongly recommended, as it offers many advantages to co-owners.

In particular, the indivision agreement makes it possible to administer the rights of the various owners and the management of the property. For example, it can determine whether the co-owners may, at the time of resale of their share, transfer it to anyone or whether they must first offer it to the other owners. It can also determine which sections of the building would be for the exclusive use of one or the other owner. Otherwise, neither owner will be able to claim an exclusive right to the part of the building they occupy.

Although the undivided co-ownership agreement is effective as soon as it is signed by the co-owners before a notary, it is still recommended that it be published in the Quebec Land Register. This ensures that all future buyers will be bound by it.

The indivision agreement can be renewed at any time, but it has a maximum duration of 30 years. When all co-owners sign this legal document, they create what is sometimes called an "organized undivided co-ownership".

The possible complications of this type of co-ownership

Currently, the Civil Code of Quebec does not provide much of a framework for the obligations and rights of undivided co-owners. This can lead to many conflictual situations. Fortunately, some of these situations can be avoided by signing an indivision agreement in due form.

As mentioned earlier, you will not be able to claim an exclusive right to occupy a part of the property without such an agreement. Therefore, be sure to put in writing which part of the building can be used by whom in order to avoid possible conflicts.

As for other possible complications, note that buying an undivided co-ownership (with someone other than your spouse) can make it more difficult to obtain a mortgage loan. Although the Civil Code allows each co-owner to obtain a separate mortgage that would bind only him or her, financial institutions may require the involvement of all undivided co-owners to grant mortgage financing. This means that all co-owners will be jointly responsible for the loan. You could therefore suffer major setbacks in the event of default by one or other of your co-owners.

However, if you have a published Indivision Agreement that includes safeguards to ensure payment of the various obligations, some financial institutions may offer you  « limited liability » mortgages. This means that in the event of default, only the co-owner's share of the property can be seized by the creditor and the other co-owners are not liable for the debt.

The sale of your undivided portion of the co-ownership can also be an arduous task: even if the Indivision Agreement specifies that you can sell to anyone, you should know that few buyers are interested in acquiring an undivided share of a building.

Finally, note that, unlike a divided co-ownership, undivided co-owners are not obliged to contribute to a contingency fund, which could be a problem if a major repair is urgently needed.

Are you planning to buy a divided or undivided co-ownership property?

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