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When Co-Owners Disagree: Application for Partition or Sale
Last Updated on November 20, 2023 by Shayna Beeksma
Disclaimer: This article is intended for the purposes of providing information on applications for partition or sale under the Partitions Act. It is to be used only for the purposes of guidance. This article is not intended to be relied upon as the giving of legal advice and does not purport to be exhaustive.
In a perfect world, co-owned properties would be owned by individuals who would be able to unanimously agree on how to dispose of the property.
However, in the real world, sometimes things don’t go as planned. In fact, that is why we adamantly recommend that parties enter into a co-ownership agreement before purchasing property with others.
In the absence of that agreement, when co-owners can’t agree on what to do with jointly owned property, they may have to apply for partition and sale under the Partition Act. That disagreement must be an irreconcilable difference and the party’s only option to move forward is to file an application.
This process forces a sale of the property and allows each party their share of the proceeds. Let’s take a closer look at what this process entails.
When does the Partition Act apply?
The Partition Act applies when there are two or more people who own property together and they can’t agree on what to do with it. It does not matter if the property is co-owned by way of joint tenancy or tenants-in-common.
What remedies are available under the Partition Act?
The answer is actually found within the remedy itself – an owner can apply for partition or sale of the property. The court can either grant an order for partition, which would result in the property being divided, or it can grant an order for sale, which would result in the property being sold and the parties splitting the proceeds.
The court’s remedy is determined by a number of factors, including the type of property itself. Vacant land may lend itself more to being partitioned, whereas a condominium unit would likely be ordered to be sold.
What remedies are not available under the Partition Act?
The court will not transfer the property from one co-owner to another. So, if there are two co-owners and one wants to buy out the other, they would not be able to use the Partition Act for that purpose.
The court also will not make any determination as to who is at fault or how the property got into the current situation. The focus of the Partition Act is solely to grant the co-owner permission to sell the property or divide it.
Principles of the Partition Act
The court looks to some general principles when it decides whether it should grant an application for partition or sale.
They are:
- A co-owner has a presumed right to partition or sell the property,
- The other co-owner has an obligation to permit that partition or sale,
- The court should grant a partition or sale unless there is a sufficient reason not to.
This means that it is the responsibility of the owner that is objecting to the sale to prove that it should not take place. The co-owner wishing for the partition or sale does not have to provide information as to why they want that remedy.
That phrase “sufficient reason” has been further fleshed out by the courts. For example, a court may find that the application for partition or sale was done in a vexatious or oppressive manner.
The Partition Act and Your Co-Ownership Agreement
If the co-owners have a co-ownership agreement, the courts will not grant an order that would be tantamount to a breach of that agreement.
Significantly, co-owners can have terms in their co-ownership agreement that waives their right to the provisions of the Partition Act. If a co-owner waives their right to resort to the Partition Act, that co-owner cannot then expect a court to employ that law to go against the contract.
Understanding Your Options
While co-owning a property can offer many benefits, it’s important to understand the risks that come along with it. Whether you want to discuss having a co-ownership agreement in place to avoid these issues, or you want assistance in handling a disagreement, our team can help.
At Beeksma Law, we have a broad range of experience with both transactional and litigation issues related to real estate. That means that not only can we help you craft agreements that will avoid future issues, we can also help you navigate any issues that arise.
To learn more, please book a free consultation to discuss your specific situation with a member of our team.
Questions to Ask Before Co-Owning a Home
Last Updated on November 9, 2023 by Shayna Beeksma
Disclaimer: This article is intended for the purpose of providing information on co-owning a house only. It is to be used only for the purposes of guidance. This article is not intended to be relied upon as the giving of legal advice and does not purport to be exhaustive.
Entering the real estate market in Ontario is becoming increasingly difficult, with the average home in Toronto now selling for roughly $1.2 million. Faced with this reality, some people are choosing to co-own property with friends or family members.
In fact, one report indicates that family members are providing financial help for up to 30% of new home purchases. Of course, there are other scenarios where you may want to co-own a property, such as a group of friends getting together to buy a vacation home.
Regardless of the circumstances, there are many considerations to think about before owning a home with anyone, including your family members. (Note: there are different limitations under the Family Law Act for the matrimonial home).
Of course, each situation is unique (and we would be happy to discuss your situation with you). However, here are three key questions to ask yourself before co-owning a home with anyone:
Do I really need a co-ownership agreement?
Yes. Unequivocally, no questions asked, you should absolutely have a co-ownership agreement in place.
But it’s my mother, father, sibling, best friend since kindergarten and we always get along.
Agreements can become disagreements, even amongst the closest of friends and family. As well, having an agreement can also ensure that you’ve considered different scenarios and are on the same page.
Who is responsible for maintaining the property? You should outline in the agreement who is responsible for maintaining the property and to what extent.
What if one owner wants to sell? It’s important to consider what will happen if one of the owners would like to sell. Who will be responsible for securing a new co-owner? What if the departing owner wants to sell their share back to the remaining owners? These are all important questions that your agreement should answer.
What if someone wants to make changes to the property, like an addition or a new roof? Such changes could be expensive and may require the consent of all owners. It’s important that everyone is on the same page and agrees to any proposed changes, big or small.
Will there be rental income from tenants? If so, how will you divide that income? For example, if two friends are co-owners and one friend lives in the property while the other rents out their bedroom to a tenant, how will you divide the rental income?
If a parent is co-owning the home to help their child qualify for a mortgage, how will that gift be treated when it’s time to sell? Let’s say, for example, a child and parent own a property using a 70-30 split. In the absence of a co-ownership agreement, the parent would be entitled to 30% of the sales proceeds. The parent may want their full investment returned and that should be spelled out in the co-ownership agreement.
A co-ownership will address all these situations, as well as who will own the the property and how you will handle any disagreements (i.e. by mediation, arbitration, etc.)
What are the implications of co-owning a property?
Let’s talk about the scenario of two people co-owning a home.
If one person is a first-time homebuyer and the other is not, their eligibility for the land transfer tax credit would be affected. The tax credit would be reduced proportionately to the ownership of the property.
For example, a child (a first-time homeowner) and parent (not a first-time homeowner) equally divide the purchase of a property. The child’s 50% ownership would entitle them to 50% of the land transfer tax credit. Knowing this, you may structure the ownership differently. The parent may have a smaller share of the property to maximize that credit.
On the other hand, the parent should fully understand the implications as far as any mortgage is concerned, as the parent may be fully accountable for any default.
As with any property, all parties will want to ensure that there are mechanisms in place if one of the parties passes away. Of course, you would want to talk to an estate lawyer to ensure that you cover all your bases.
How Can I Protect My Interests when co-owning a house?
These are just a few key things to consider when co-owning a property. As with any legal document, it’s important that you seek legal advice to ensure that you can protect your interests.
We have helped many co-owners document their intentions and be able to purchase their property. Have the peace of mind of knowing that you’ve considered all the key issues and have a plan in place.
If you’re thinking of co-owning a property and would like more information, please contact us. We would be happy to help.