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Thomas Jacob is a Shareholder of
Thoits Law, specializing in transactional real estate matters.
He can be reached at:
(650) 327-4200 | Phone
330-4704 | Direct Dial
(650) 325-5572 | Fax
Real Estate Group:
Thomas B. Jacob
Anne E. Senti-Willis
Stephen C. Gerrish
Kathryn J. Andrews
Co-Ownership Agreements – Key Issues
By Thomas B.Jacob
The following is a list of the major issues that should be addressed in an agreement among the
co-owners of real property, either residential or commercial. Since real estate generally
represents a sizable investment for its owners, and is relatively illiquid, carefully addressing
these issues in a written agreement is most important to avoid unpleasant and costly disputes.
These issues should be addressed whether the property is to be held as tenants in common or within a
limited liability company or other entity.
- Owners: Identify each owner’s name
and percentage ownership of the property. Avoid having ownership percentages change over time if
possible by using loans and other alternatives.
- Term: Determine the term of the
agreement. The term can be set to a fixed date, or the term can be continuous until a specified
event occurs (such as the entire property is sold to a third party, one owner acquires the entire
interest in the property or the owners mutually decide to terminate). We usually recommend a term
that ends on the first to occur of a number of specified events, including an outside fixed date
(for example, 50 years).
- Decisions: Determine what decisions need the consent of all
of the owners and what decisions can be made by a single owner or majority of owners. Decisions to
consider include insuring, encumbering, renting, renovating and selling the property. The decision
on selling the property is particularly important, and the agreement should address what happens if
not all owners wish to sell (i.e. can the owner wishing to sell force a sale of the entire property
or the buyout of his or her interest?). This issue is covered more thoroughly in one of our other
Co-Ownership Briefs, which can be found on our website.
- Owners’ Rights: Determine
each owner’s right to possession and use of the property. The specific rights to consider include:
- whether use of the property (or any partition thereof) is exclusive or shared,
and if shared, how will the use be coordinated between the parties;
- whether there are
any limitations on who can use the property (for example, whether an owner has to be present,
whether there is a maximum capacity for the property, etc.);
- whether the property can
be rented to others, and if so, how the rental income will be distributed between the owners;
- whether an owner can encumber the property (for example, obtain a loan and use his or her
interest in the property as collateral); and
- whether an owner can improve the property
without the consent of other owners, and such owner’s right to be reimbursed for the cost of such
- Management and Maintenance Obligations: Determine who is
responsible for managing and maintaining the property (or the partitions thereof).
Expense Obligations: Determine how the expenses of the property will be allocated among the
owners. Such expenses include maintenance, property taxes, insurance, utilities, loan payments and
other operating expenses.
- Right to Transfer Ownership Interest: Determine each
owner’s right to transfer its interest in the property. We recommend including a method of allowing
the other owners to purchase the interest of someone who no longer wishes to be an owner. These
provisions must address how the price is set, how to accommodate everyone if more than one of the
other owners wishes to buy, and whether the owners waive the right to a judicial partition of the
property. For example, an owner can have the right to force a sale of the property, and, in order
to protect the other owners, the other owner can have the right to purchase the interest of the
- Death of an Owner: Determine each owner’s rights in the event of the
death of an owner. Possible options include:
- having the interest pass to the
deceased owner’s beneficiaries in accordance with his or her estate plan;
- giving the
surviving owners the right to purchase the deceased owner’s interest in the property; and
- having the interest of the deceased owner automatically go to the surviving owners.
- Default and Remedies: Determine each owner’s rights in the event another owner
breaches its obligations under the agreement. Possible rights upon an owner’s default include:
- the right to sue for breach and collect damages;
- the right to
perform on behalf of the defaulting owner and be reimbursed for the cost of such performance;
- the right to purchase the defaulting owner’s interest in the property;
- and the right to
force a sale of the property.
- Our Real Estate Law Alerts, and the related Real Estate Co-Ownership Briefs, are publications of general applicability and not specific to any set of facts. Thus, they should not be relied upon for any specific case or matter without further discussion. No attorney-client relationship is formed as a result of your reading or replying to this newsletter, which is not intended to provide legal advice on any specific matter, but rather to provide insight into current developments and issues.
Thoits Law, A Professional Corporation
400 Main Street, Suite 250
Los Altos, CA 94022
(650) 327-4200 | Phone
(650) 325-5572 | Fax