Are you considering buying a condominium? One of the first decisions you’ll need to make is whether you want a divided or an undivided property.
These two types of co-ownership have distinct characteristics, each with its own sets of rights and obligations. Let’s explore the distinctions and make sure you understand their differences as you select your future home.
1. Divided co-ownership: the familiar condo
When people talk about condominiums, they usually refer to divided co-ownership. This is undoubtedly the most recognize type of co-ownership.
As the name suggests, a divided co-ownership involves a building that had been divided into several sections, including both private unites and common areas. Let's learn more about them.
Private area
When purchasing a divided co-ownership, you’re acquiring a private section of the building, often referred to as a fraction. This apartment is exclusively yours and is identified by its own lot number (cadastral identification). You’ll also have separate municipal and school tax accounts for your unit.
As the owner, you can sell your apartment or make minor chances without needing approval from other co-owners, provided these modifications don’t impact the building’s structure and adhere to the established cohabitation rules.
Common areas
In addition to your private space, buying a divided co-ownership means sharing various common areas of the building, represented by a quota (%). These shared spaces are for the use of all co-owner (or limited to specific co-owners in the case of restricted common areas) and are outlines in the Declaration of Co-Ownership. Common areas typically include courtyard, balconies, stairs, elevators, and hallways.
However, some areas that are generally considered common may be designated as private in the Declaration of Co-ownership. For instance, parking lots and storage spaces might be classified as private, or a balcony could be reserved for the exclusive use of the adjacent apartment owner.
Declaration and co-ownership association
Two key elements of divided co-ownership are:
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The co-ownership association: this association is responsible for overseeing the administration of the common area, ensuring that they are well maintained and managed.
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The Declaration of Co-Ownership: this legislative document acts as a contract among the various co-owner of the building. Filed in the land registry, it outlines the rules for the administration and cohabitation of the property.
The declaration contains all rights and obligations related to the co-ownership, promoting mutual understanding and good relationship among co-owners. Adherence to its clauses is mandatory.
Owners who fail to comply with the obligations specified in the declaration may face consequences ranging from a simple warning to an injunction. It’s important to take this contract seriously!
The Declaration of Co-Ownership is divided into three distinct parts:
- The constitutive deed of co-ownership.
- The building regulations.
- The descriptive statement of the fractions.
The contingency and the self-insurance fund
Since 1994, the law has mandated that condominium corporations establish a contingency fund to address unforeseen circumstances. This fund is intended to help finance necessary repairs or improvements in the common areas of the building. The amount set aside typically represents a minimum of 5% of the common expenses paid by the co-owners, though a prudent co-ownership may allocate a larger portion to ensure adequate reserves.
Since April 2022, divided co-ownerships are also required to create a self-insurance fund. This fund serves as a monetary reserve to cover insurance deductibles in the event of a claim. The funds accumulated will belong to the syndicate, and the board of directors must evaluate the minimum contributions from co-owners to this fund each year when preparing the annual budget.
Undivided co-ownership: a broad concept
Unlike divided co-ownerships, undivided co-ownerships do not physically separate private and common areas. When you purchase this type of property, you acquire a percentage of the entire building, meaning you and the co-owners collectively hold ownership rights over the entire property.
In undivided co-ownership, a single lot number is assigned to the entire building. School and municipal taxes are shared among all co-owners, who are responsible for these costs as well as other property-related charges in proportion to their ownership stake.
Examples of undivided co-ownership
The concept of undivided co-ownership is quite broad and can encompass various situations:
Couples buying a home
A common example occurs when two partners purchase a new home together. By co-signing the documents, they become co-owners, typically sharing equal ownership (50% each) unless the deed specified otherwise.
Inheritance
Undivided co-ownership can also arise in estates when multiple individuals inherit a property. Their ownership percentages depend on their familial relationship (as outlined by law) or the terms of the will.
Friends purchasing together
Three friends buying a triplex together would also be classified as undivided co-owners, sharing ownership of the entire building collectively.
The Co-Ownership Agreement
While the Declaration of Co-Ownership is mandatory for divided co-ownerships, undivided co-ownerships do not necessarily requite a notarized contract. However, a co-ownership agreement is highly recommended, as it provides numerous benefits for co-owners.
The co-ownership agreement facilitates the administration of the right of various occupants and the management of the property. It can address several important aspects, such as:
- Determining whether co-owners can sell their shares to anyone or must first offer them to the other owners.
- Postponing the right to partition the undivided property.
- Establish sections of the building that would be for the exclusive use of one or the other of the owners.
Although the co-ownership agreement becomes effective once signed by the co-owners in front of a notary, it is advisable to register it with the Quebec Land Registry. This ensures that all future buyers will be bound by its terms.
The co-ownership agreement can be renewed at any time, but it has a maximum duration of 30 years. When all the co-owners sign this legal document, they effectively create what is sometimes referred to as an organized undivided co-ownership.
Possible complications of undivided co-ownerships
Currently, the Civil Code of Quebec offers limited guidance on the rights and obligations of undivided co-owners, which can lead to various conflicts. Fortunately, many of these issues can be mitigated by signing a formal indivision agreement.
Without such agreement, co-owners cannot claim exclusive rights to specific parts of the property. It’s essential to clearly documents which areas of the building can be used by whom to prevent potential disputes.
Mortgage challenges
When purchasing an undivided co-ownership with someone other than a spouse, it can complicate obtaining a mortgage loan.
While the Civil Code allows each co-owner to secure a separate mortgage that binds only them, financial institutions may require all co-owners to participate in the mortgage application. This means that all co-owners will be jointly responsible for the loan, which can pose significant risks if one co-owner defaults.
However, if you have a published Indivision Agreement that includes safeguards for financial obligations, some lenders may offer limited liability mortgages. In this case, if a co-owner defaults, only that individual’s share of the property can be seized, protecting the other co-owners from liability for the debt.
Sale complications
Selling you undivided portion of the co-ownership can also be challenging. Even if the Indivision Agreement allows you to sell to anyone, few buyers are typically interested in acquiring an undivided share of a property.
Lack of contingency fund
Undivided co-owners are not required to contribute to a contingency fund. This could create difficulties if urgent repairs are needed, as there may not be a readily available financial reserve to cover such costs.
Transitioning from undivided ownership to divided co-ownership
Co-owners have the options to convert an undivided co-ownership into a divided co-ownership if they wish to do so.
To initiate the process, a request must be submitted to the Administrative Housing Tribunal, along with the payment corresponding to the number of units involved. The Tribunal will then schedule a hearing where the applicants can present evidence and circumstances supporting their decision to make the conversion.
Once their request is approved, the co-owners have one year to register their Declaration of Co-Ownership with the Land Registry Office. This document must be accompanied by the Tribunal’s decision authorizing the conversion. It’s important to act within this timeframe, as the authorization will no longer be valid after one year.
Are you planning to buy a divided or an undivided co-ownership property?
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