When you jointly purchase real property, you and your fellow buyers become co-owners. In such cases, having a land co-ownership agreement in place can help decrease the potential for future conflicts. Such a document serves to outline each party's use, rights, and responsibilities with respect to their joint ownership of the shared land.
Types of Joint Land Ownership
There are three common ways in which land can be jointly owned:
- Tenancy in common. With this type of joint land ownership, the co-owners each own interest in the property, the percentage of which may or may not be equal. For example, one co-owner could own a 60% interest in the property, while the other owns 40%. Unlike a joint tenancy, a tenancy in common does not have requirements as to when and how a co-owner obtains their interest in the property.
- Joint tenancy. In this type of agreement, all co-owners own an equal interest in the property. For example, if there are three co-owners, each owns a one-third interest. Creating a joint tenancy is more complicated than a tenancy in common, as each co-owner must acquire their interest in the land at the same time and under the same document.
- Tenancy by entirety. Essentially the same as joint tenancy, tenancy by entirety differs in that the co-owners are married. This type of joint ownership is less common and not all states provide this as an option for joint land ownership.
Transfer of Ownership Interest
Your right to transfer your ownership interest in jointly held property depends on how the property is jointly owned. In a tenancy in common, for example, each co-owner has an individual interest that can be transferred to another person or entity, either through a sale or via a will.
A joint tenancy, on the other hand, comes with right of survivorship, which means when one joint tenant dies, their interest in the land is passed on to the other joint tenants. While a joint tenant can transfer their interest in the land, doing so converts the joint tenancy into a tenancy in common. Like a joint tenancy, a tenancy in entirety also has a right of survivorship, but if one spouse wishes to terminate the agreement or sell their interest, they must obtain the consent of the other spouse.
Using a Land Co-Ownership Agreement
Whenever you have shared ownership, a land co-ownership agreement not only sets out each party's ownership interest and how title to the property is held, it also puts into writing how rights and obligations are to be shared among the co-owners. These rights include each party's use of the land, payment of taxes, and responsibilities for maintenance, repairs, and any other upkeep matters. Co-owners often share rights and duties in accordance with their ownership interest in the property, but in some cases, parties may negotiate a different way to split a specific right or obligation.
As an example, Bob owns a 60% interest in a vacation rental property while Trudy owns 40%, but Bob agrees to pay 90% of the taxes and maintenance costs in exchange for Trudy acting as the property manager. They could also agree to split the rental income evenly despite the difference in their share of ownership.
A comprehensive land ownership agreement should also outline what happens if the issue of refinancing comes up. For example, if one party wishes to refinance through a second mortgage, the document should address the requirement of consent of all parties and what happens if unanimous consent can't be obtained.
Buying property jointly with others often makes sense, but it's also important to set out in writing each party's rights and obligations. Doing so will minimize the chance of headaches and disputes down the road.