This land co-ownership agreement is between
The parties own real property, and improvements on that property, located in the county of
The parties want to enter this agreement to (a) provide for the orderly administration of the Property, (b) set forth their rights and obligations to each other and to others and (c) delegate authority and responsibility for the intended future operation and management of the Property.
The parties therefore agree as follows:
1. OWNERSHIP AND TITLE.
- (a) Tenants in Common. The parties shall each hold their interests in the Property as tenants in common, based on the respective initial capital contributions listed in Exhibit B, at the percentages listed in Exhibit B. Each party's respective ownership interest is referred to as its "Interest."
- (b) Reporting as Direct Owners; Not a Partnership. Each party shall report on its federal and state income tax returns all items of income, deduction, and credits that result from its Interests. This reporting will be consistent with the exclusion of the parties from subchapter K or chapter 1 of the code.
- (c) No Agency. No party is authorized to act as an agent for, to act on behalf of, or do any act that will bind any other party, or to incur obligations with respect to the Property.
3. DECISIONS.
- (a) Approvals. The parties shall unanimously approve:
- (i) any lease, sublease, deed restriction, or grant of easement on all or any part of the Property, but the conveyance of leases or subleases under contracts with third parties that have been previously approved do not require additional approval;
- (ii) any sale or exchange of the Property;
- (iii) any indebtedness or loan, or any negotiation or refinancing of any indebtedness or loan, secured by a lien on the Property;
(iv) any successor or replacement Manager; (v) (iv) annual budgets for development and operations of the Property; and(vi) (v) any contracts, renewals, or amendments, and any transactions with parties affiliated with any party. or the Manager, including the Management Agreement.
- (b) Majority. Decisions about the day-to-day management of the Property require the approval of a majority of the parties.
- (c) Meetings. Any party
or the Manager can call a meeting by providing written notice at leastdays before the date of that meeting. The notice shall state the nature of the business to be discussed, and all parties and the Manager shall make reasonable efforts to attend the meeting, whether in person or by electronic means.
4. INCOME AND LIABILITIES.
Each party will be entitled to all benefits and obligations of ownership of the Property. Specifically, each party shall:
- (a) be entitled to all benefits of ownership of the Property, on a gross and not a net basis, including all items of income, revenue, and proceeds from a sale, refinance, or condemnation of the Property, in proportion to their Interests; and
- (b) bear, and be liable for, payment of all expenses of ownership of the Property, on a gross and not a net basis, including all operating expenses and expenses of a sale, refinancing, or condemnation, in proportion to their Interests, except for amounts to be retained for reserves or improvements in accordance with
the Management Agreement or the applicable budget for the Property.
5. OBLIGATIONS.
- (a) Documents. Each party shall execute any documents required in connection with a sale or refinancing of the Property.
- (b) Additional Funds. Each party shall be responsible for its pro rata share, based on its Interest, of expenses, fees, and future cash needed in connection with the acquisition, financing, ownership, operation and maintenance of the Property, including any costs incurred before the effective date of this agreement.
6. SALES OF PROPERTY, INTERESTS.
- (a) Right to Sell Interest. Each party may sell its Interest at any time. However, that sale must be for the selling party's entire Interest and to one buyer only. If a party sells its entire Interest, the sale proceeds shall be used first to pay in full any mortgage or other lien to which that Interest is subject. After that, the balance, if any, will be distributed to the selling party. The new buyer shall take its interest subject to this agreement, and the seller and buyer shall sign a separate assignment agreement to this effect.
- (b) Sale of Entire Property. If the parties jointly sell or otherwise dispose of the Property in its entirety, the costs of that sale will be shared by all parties in accordance with their Interests. The proceeds will be used first to pay in full any mortgage or other lien to which the Property is subject. After that, the balance, if any, will be distributed to the parties in accordance with their respective Interests.
7. TERMINATION.
This agreement shall become effective on the effective date described in section
- (a) the Property is sold or exchanged;
- (b) this agreement is terminated by mutual agreement of the parties; or
- (c) a party buys or otherwise takes ownership of all Interests in the Property.
8. TAX MATTERS.
The parties intend to be excluded from the provisions of the Internal Revenue Code relating to partnership reporting requirements. The parties shall report their respective shares of the items of income, deduction, and credit on any required income tax returns in a manner consistent with the exclusion of the Property from those provisions of the Internal Revenue Code.
9. DIVISION OF PROFITS AND LOSSES.
Except as otherwise provided in this agreement, the net profits of the Property shall be divided and distributed to the parties on a pro rata basis in accordance with their respective Interests. All losses and liabilities occurring in the course of the business shall be borne and paid by the parties in the same proportion.
10. EVENTS OF DEFAULT.
Each of the following will be considered an "Event of Default" under this agreement:
- (a) the failure of a party to pay assessments against it, to make capital or other contributions when called to be made, or to pay any other amount or produce any information due under this agreement as and when due, and the continuance of that failure for a period of 45 days after that party's receipt of written notice from the other party specifying the failure;
- (b) the failure of a party to perform, comply with, or observe any other agreement, obligation, or undertaking of the parties related to the Property, or any other term, condition, or provision in this agreement, and the continuance of such failure for a period of 45 days after that party's receipt of written notice from the other party specifying the failure, or, if reasonably required, any longer period (not to exceed 120 days) needed to cure that failure. However, this extension will be permitted only if the defaulting party timely and diligently starts and completes the required cure;
- (c) the involuntary transfer by a party of its Interest in the Property or, except as specifically permitted pursuant to this agreement, the voluntary attempt to or actual transfer of its Interest without the other party's prior written consent;
- (d) the filing of a petition by or against a party:
- (i) in any bankruptcy or other insolvency proceeding;
- (ii) seeking any relief under the bankruptcy laws or any similar debtor relief law;
- (iii) for the appointment of a liquidator or receiver for all or substantially all of the party's property or for the party's Interest in the Property; or
- (iv) to reorganize or modify the party's capital structure; and
- (e) a party's written admission that it cannot meet its obligations as they become due or the assignment by that party for the benefit of its creditors.
11. DEFAULTS AND REMEDIES.
- (a) Termination. If an Event of Default occurs, the nondefaulting parties may, at their option and in their discretion, and in addition to all other rights, remedies, and recourses afforded them under this agreement or by law or equity, terminate this agreement by giving written notice to the defaulting party.
- (b) Advances of Funds. If a party does not pay its share of costs and expenses, including any applicable taxes, the other parties may advance the necessary funds to the defaulting party. All amounts so advanced shall bear interest at the prime interest rate on the date of the advance, calculated from the date of that advance, and will be due immediately on written demand for payment as provided in this agreement. If a party does not pay the full amount of any advances and interest within 30 days of receipt of a demand for payment, that party will be deemed in default under this agreement.
- (c) Disbursements after Default. If the Property is sold or if profits from the Property are disbursed, all amounts due to the defaulting party will be applied first to pay debts to the nondefaulting parties, plus all accrued interest, in proportion to the amounts the nondefaulting parties advanced to the defaulting party as set forth subsection (b) above. Only after the nondefaulting parties have been repaid as set forth in this subsection will the defaulting party receive any remaining balance.
12. RESTRICTIONS ON PARTIES.
- (a) Limited Owners. There may be no more than
owners of the Property. A party may not subdivide or sell (or attempt to subdivide or sell) any interest in or to the Property other than its Interest in its entirety. - (b) Purchase Option. A party may not transfer or encumber its undivided Interest in the Property without giving prior written notice of its intention to the other parties. That notice shall set forth the terms on which the offering party proposes to transfer or encumber its Interest and the identity of the person or persons to whom the party proposes to transfer or encumber its Interest. After receiving this written notice, the other parties shall have 30 days to obtain the offering party's Interest on the same terms as set forth in the notice. If, during that 30 day period, none of the parties elect to obtain the Interest on the terms described, the offering party may transfer or encumber its Interest, on the same terms described in the written notice, for a period of 45 days after the expiration of the 30 day period. After the expiration of the 45 day period, the offering party may not transfer or encumber its Interest without again complying with the terms of this subsection.
- (c) No Business Activities. None of the parties, their agents, family, or invitees may engage in any business activities on the Property except those customarily performed in connection with the use, enjoyment, maintenance, and repair of the Property.
13. LEASE AGREEMENTS.
Any leases on the Property shall be made at a fair market rental price. No lease may provide for rent based on the income of or profits derived from the Property or the lessee.
14. DEATH OF A PARTY.
On the death of a party, his or her personal representative shall make all payments under, fulfill all obligations in, and be bound by all of the provisions of this agreement.
15. SPECIFIC PERFORMANCE.
The parties may suffer irreparable damage if this agreement is not enforced specifically according to its terms. All of the terms of this agreement shall be enforceable in a court having equity jurisdiction by a decree of specific performance, by injunction, or by both a decree of specific performance and injunction.
16. GOVERNING LAW.
- (a) Choice of Law. The laws of the state of
govern this agreement (without giving effect to its conflicts of law principles). - (b) Choice of Forum. The parties consent to the personal jurisdiction of the state and federal courts in
County, .
17. AMENDMENTS.
No amendment to this agreement will be effective unless it is in writing and signed by a party.
18. ASSIGNMENT AND DELEGATION.
- (a) No Assignment. A party may not assign any of its rights under this agreement, except with the prior written consent of each other party. All voluntary assignments of rights are limited by this subsection.
- (b) No Delegation. No party may delegate any performance under this agreement, except with the prior written consent of each other party.
- (c) Enforceability of an Assignment or Delegation. If a purported assignment or purported delegation is made in violation of this section, it is void.
19. COUNTERPARTS; ELECTRONIC SIGNATURES.
- (a) Counterparts. The parties may execute this agreement in any number of counterparts, each of which is an original but all of which constitute one and the same instrument.
- (b) Electronic Signatures. This agreement, agreements ancillary to this agreement, and related documents entered into in connection with this agreement are signed when a party's signature is delivered by facsimile, email, or other electronic medium. These signatures must be treated in all respects as having the same force and effect as original signatures.
20. SEVERABILITY.
If any one or more of the provisions contained in this agreement is, for any reason, held to be invalid, illegal, or unenforceable in any respect, that invalidity, illegality, or unenforceability will not affect any other provisions of this agreement, but this agreement will be construed as if those invalid, illegal, or unenforceable provisions had never been contained in it, unless the deletion of those provisions would result in such a material change so as to cause completion of the transactions contemplated by this agreement to be unreasonable.
21. NOTICES.
- (a) Writing; Permitted Delivery Methods. Each party giving or making any notice, request, demand, or other communication required or permitted by this agreement shall give that notice in writing and use one of the following types of delivery, each of which is a writing for purposes of this agreement: personal delivery, mail (registered or certified mail, postage prepaid, return-receipt requested), nationally recognized overnight courier (fees prepaid), facsimile, or email.
- (b) Addresses. A party shall address notices under this section to a party at the following addresses:
- If to
: , - If to
: , If to : , If to : , - (c) Effectiveness. A notice is effective only if the party giving notice complies with subsections (a) and (b) and if the recipient receives the notice.
22. WAIVER.
No waiver of a breach, failure of any condition, or any right or remedy contained in or granted by the provisions of this agreement will be effective unless it is in writing and signed by the parties waiving the breach, failure, right, or remedy. No waiver of any breach, failure, right, or remedy will be deemed a waiver of any other breach, failure, right, or remedy, whether or not similar, and no waiver will constitute a continuing waiver, unless the writing so specifies.
23. ENTIRE AGREEMENT.
This agreement constitutes the final agreement of the parties. It is the complete and exclusive expression of the parties' agreement about the subject matter of this agreement. All prior and contemporaneous communications, negotiations, and agreements between the parties relating to the subject matter of this agreement are expressly merged into and superseded by this agreement. The provisions of this agreement may not be explained, supplemented, or qualified by evidence of trade usage or a prior course of dealings. No party was induced to enter this agreement by, and no party is relying on, any statement, representation, warranty, or agreement of any other party except those set forth expressly in this agreement. Except as set forth expressly in this agreement, there are no conditions precedent to this agreement's effectiveness.
24. HEADINGS.
The descriptive headings of the sections and subsections of this agreement are for convenience only, and do not affect this agreement's construction or interpretation.
25. EFFECTIVENESS.
This agreement will become effective when all parties have signed it. The date this agreement is signed by the last party to sign it (as indicated by the date associated with that party's signature) will be deemed the date of this agreement.
26. NECESSARY ACTS; FURTHER ASSURANCES.
Each party shall use all reasonable efforts to take, or cause to be taken, all actions necessary or desirable to consummate and make effective the transactions this agreement contemplates or to evidence or carry out the intent and purposes of this agreement.
[SIGNATURE PAGE FOLLOWS]
Each party is signing this agreement on the date stated opposite that party's signature.
| Date:______________________________ | By:____________________________________________________________ | |
| Name: | ||
| Date:______________________________ | By:____________________________________________________________ | |
| Name: | ||
[PAGE BREAK HERE]
EXHIBIT A
DESCRIPTION OF PROPERTY
[PAGE BREAK HERE]
EXHIBIT B
PERCENTAGE INTERESTS
| add border | ||
|---|---|---|
| Name | Percentage Interest | Initial Capital Contribution |
How-to guides, articles, and any other content appearing on this page are for informational purposes only, do not constitute legal advice, and are no substitute for the advice of an attorney.
Land co-ownership agreement: How-to guide
A land co-ownership agreement is a contract between two or more people to own a piece of property together.
This legal document sets forth,
- Each party’s right to use
- The obligation to pay taxes and upkeep
- Entitlement to profits
- Transfer rights in the property
An accurately written agreement will safeguard the owners’ relationships and avoid disputes due to one party’s intent to own the entire property. The protection offered by a contract can help reduce the chances of expensive disputes or litigation.
If you wish to own land collectively with one or more individuals, use a land co-ownership agreement. A properly drafted and executed contract can encourage a successful relationship between co-owners and lay the foundation for a profitable venture.
Understanding land co-ownership agreement
Types of land co-ownership agreements
There are two most common types of land co-ownership:
1. Tenancy in common: In this arrangement, two or more people (unrelated) can own different parts of the same property. These parts don’t have to be equal and can differ in size or shape. If a co-owner dies in this arrangement, their ownership interest will transfer to their heirs.
2. Joint tenancy: Usually created between married couples or family members who want their ownership interest to pass to each other when someone dies. In other words, when a co-owner dies, the interests transfer automatically to the other co-owners and not to the heirs.
Number of co-owners for a property
There is no limit to the number of people who can co-own a piece of land. However, if you’re buying the property for investment purposes (e.g., as a rental property), certain tax implications may require limiting the number of co-owners. Talk to an accountant or other tax professional if you have concerns.
Relationship between the co-owners
Co-owners of a property shouldn’t function as business partners, shareholders, or business members. If your property is being used for purposes beyond a simple tenancy, you and the other owners may be subject to additional tax obligations.
Property maintenance
If you hire someone to maintain your property, consider signing a “power of attorney” in their name. This will allow the manager to conduct day-to-day business on your behalf without obtaining individual permission each time.
Property background checks
Perform a title search on any property you’re preparing to buy. Information about previous owners and existing liens is usually recorded with county offices.
Agreement registration in the county office
Record your document in the county where the property is located. This is extremely important as ownership interests aren’t fully protected until the document is recorded. The name of the county office involved with recording real estate instruments varies from state to state. It may be called the County recorder’s office, Land registry office, Registrar of titles, or Register of deeds.
Agreement review and signatures
Both parties should review the completed agreement carefully to ensure all relevant points are included. This will ensure that both parties know their responsibilities in the document. Even if certain terms are agreed upon verbally, include them explicitly in the document.
Each co-owner must save a signed copy of the agreement. Have your document notarized to limit the challenges to the validity of a party’s signature.
Contact a real estate attorney to help you draft the agreement according to your needs.
Key elements in land co-ownership agreements
The following instructions will help you understand the terms of your agreement. Please review the entire document before starting your step-by-step process.
Introduction
This section identifies the document as a land co-ownership agreement. Add the effective date and the name of all the parties (co-owners) involved. All the co-owners involved in the agreement are collectively called “parties.”
Recitals
The “whereas” clauses, or recitals, define the agreement and provide background information about the parties. In this agreement, the recitals include a statement of the parties’ intent to enter into a co-ownership agreement to co-own the property.
Describe the property’s street address, city, county, state, and legal description. If this property is or has been in escrow, add the name of the escrow agent.
Ownership and title
This section states the ownership structure between the parties. The parties can consider themselves joint tenants in common, and each receives title as co-tenants. Each party can use, enjoy, and control the property according to the agreement.
Since this is joint ownership, enter each party’s name and the ownership percentage each will receive. This division may be equal or unequal.
Termination
This section mentions that the agreement will continue indefinitely until an undeniable scenario occurs, such as
1. If the property is sold
2. If the parties unanimously agree to end the arrangement
3. If one party ends up owning the entire property
Tax matters
Given the many restrictions the Internal Revenue System (IRS) places on partnerships in which multiple parties own land together, it is essential to emphasize that your agreement is among separate individuals.
This section confirms that the parties are just co-owners of the same property and aren’t involved as partners. Therefore, they aren't subject to additional property tax payments as required by the IRS.
Decisions
This section explains how the major property-related decisions will be made, such as:
- The parties must agree on the decision before hiring a new property manager, selling or leasing the property, or placing a lien on the property.
- If the parties agree to hire a manager for day-to-day management of the property, they may also sign a renewal management agreement with that person or sign a power of attorney. This allows that person to manage the property without getting specific authorization every time.
Division of profits and losses
In this clause, state how the parties will share all earnings (like rental income) or pay any obligations related to the property in proportion to their interest.
For example, if one owner holds 30% of the property, they’ll be expected to pay 30% of the debts and receive 30% of the profits.
Events of default
This section outlines actions that may cause termination of the agreement by the other parties. Some examples are:
- If one party fails to make payments and fulfill any obligations under the agreement and doesn’t rectify their action within a specific time period after the other parties’ request.
- Since this is a jointly owned property, if a party transfers (or tries to transfer) their interest to an outside party without the other parties' permission.
- If a party goes bankrupt.
- If a party writes that it can’t continue to meet its general obligations (i.e., it is nearing bankruptcy or thinks that it’ll lose control of its property shortly).
Defaults and remedies
This section states the consequences if a “default” happens. Some of the possibilities are:
- The non-defaulting party can choose to terminate the agreement without the defaulting party’s permission.
- Any non-defaulting party can loan the money to a defaulting party that can’t make payments under the agreement.
- If the defaulting party hasn’t repaid the loans, the amount might be deducted from any property-related profits they’re entitled to.
Sale of property
This section mentions the conditions each party must follow before selling their property, such as:
- In a shared ownership, every party can sell their part of the property as a whole, i.e., without breaking it into subparts.
- The party must notify the other parties and the manager of the property sale.
- If the entire property is sold, any debts attached to it (e.g., lien or mortgage payments) will be paid first. The parties can later divide the leftover amount.
Restrictions on parties
This section restricts the number of co-buyers who can co-own the property. It also mentions each party’s rights to sell, transfer, mortgage, or dispose of their interests after providing the other parties the option to purchase.
It also mentions whether the parties are allowed to run or conduct any other business on the property.
Lease agreements
This section mentions how the property leases and rent payments must be fixed for the tenant.
Death of a party
This section discusses the consequences of a party’s death, including who’ll continue making payments and receiving profits. It also states that according to “tenancy in common,” the death of one party doesn’t mean that the other owners get their interest—instead, the interest passes according to the deceased party’s will or other governing document.
Specific performance
In certain agreements, more than simply paying money to one party is required if the other party fails to fulfill its obligations. In such cases, a mere payment can’t resolve the situation. This section of the agreement specifies that the terms of the agreement must be strictly adhered to.
If a party fails to comply with the terms, the remedy is "specific performance." This means that the party would be required to follow the terms of the agreement either by the other parties involved or by a court ruling, if necessary.
Amendments
This section indicates that any changes to the document are only effective if they’re in writing and signed by all parties co-owning the property.
No implied waiver
This section explains that even if one party allows the other to ignore or break an obligation under the agreement, it doesn’t mean that the party waives any future rights to require the other to fulfill those (or any other) obligations.
For example, say one party is late making payments, but the other party doesn’t require any interest on those late payments. Later on, the non-defaulting party could tell the other party that it wants to collect interest, as provided in the agreement. If a party defaults and claims that a right was waived just because it wasn't enforced previously, the other party can still enforce it later.
Successors and assigns
This section states that the parties' rights and obligations will be passed on to heirs or, in the case of companies, successor organizations, or organizations to which rights and obligations have been permissibly assigned.
Notices
This section lists the mailing addresses of each party to which all official or legal correspondence should be delivered.
Governing law
This clause allows the parties to choose the applicable law that’ll be used to interpret the document.
Counterparts; electronic signatures
This section mentions that even if the co-owners sign the agreement in different locations or use electronic devices to transmit signatures, all the separate pieces will be considered part of the same agreement. This provision ensures the validity of the agreement as a whole.
Severability
This clause protects the terms of the agreement as a whole, even if one part is later invalidated. For example, if a state law is passed prohibiting IRS disclaimer clauses, it won’t invalidate the entire agreement. Instead, only the section dealing with IRS tax matters would be invalidated, leaving the remainder of the agreement enforceable.
Entire agreement
In this section, the parties acknowledge that the document they’re signing is “the agreement.”
Headings
This section explains that the headings in this document are for organization purposes only and shouldn’t be used to interpret the agreement.
Frequently asked questions
What's a land co-ownership agreement?
Whether you're buying to build or want to keep your land pristine, if you share it with others, put an agreement in place. A land co-ownership agreement details each party's rights to use the land, what taxes and upkeep they're responsible for, duties, and more.
What is the information needed to complete a land co-ownership agreement?
Here's the information you'll need handy to complete your land co-ownership agreement:
- Who the owners are: Have the co-owners’ names and contact details ready.
- Where the property is located: Have the address and county details ready.
- What each owner's share is: Know what percentage of the land belongs to each co-owner.
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