When people say they are co-owners of a property, without knowing it, they are referring to undivided co-ownership, as opposed to divided co-ownership. In practice, being in an undivided co-ownership almost always presupposes a close relationship between the co-owners. These are often spouses, friends or business partners who have a desire to share the use of a property or the related expenses and income.
This text provides an overview of undivided co-ownership to help you see things more clearly.
Undivided co-ownership vs. divided co-ownership
Undivided Co-ownership is the type of ownership which is not accompanied by a physical division of the property. If there are two co-owners, they each own half of the entire property. Undivided co-owners of a motor vehicle cannot claim exclusive ownership of either side of the property! Some spouses who are undivided co-owners of a house may attribute to each other the exclusive use of one or more rooms, but the fact remains that, physically, the property is not divided.
You have understood that in the case of divided co-ownership, it is the opposite. It only applies to buildings and, in practice, we are talking about condominiums. Each co-owner has exclusive ownership and use of his or her private portion, physically divided, and a share of the common areas (elevators, roofs, exterior walls, parking, etc.).
Establishment of indivision
Undivided co-ownership is established in different ways. It may result from a contract, a succession, a judgment or the law.
Usually, indivision is created by contract. When two or more people purchase a property together, whether movable or immovable, there is indivision. There is therefore no need for the co-buyers to have a formal contract between them in this regard: the mere mention in the deed of sale of a plurality of purchasers will have the effect of creating a situation of indivision. The shares of the undivided co-owners are presumed to be equal.
Thus, when two people purchase a property, it is presumed that they each have 50% of the shares, even if their contributions to the sale price are unequal; it is then presumed, by extension, that the person who made a larger contribution made a gift to the other. It should be noted that in this case, it will be impossible to use the unjust enrichment remedy because of the existence of a contract. Consequently, it is important, if the intention of the co-buyer who invests more money in the purchase of the property is not to make a gift to the other, to mention in the contract the different value of each person’s shares.
Joint heirs who inherit the same property will also be in a situation of undivided ownership. A judgment may also have the effect of attributing ownership of a property to two people, who will then become undivided co-owners. Another example would be a judgment in transfer of title, where the promising sellers or buyers have refused to honour their promise to contract. Undivided co-ownership by law is rather rare, but this is notably the case for joint works that straddle the dividing line (walls, ditches, fences, etc.).
Rights and obligations of undivided co-owners
The Civil Code of Québec provides a series of rules governing co-ownership by indivision, unless the undivided co-owners have agreed otherwise.
The common good
The administration of the property is done jointly by the undivided co-owners. This means that decisions must be taken by majority vote. When there are only two undivided co-owners and their shares are equal, there must be consensus, otherwise there is a deadlock, subject to judicial intervention when there is no other solution. It should also be noted that decisions to sell, share, mortgage or substantially change the property must be made unanimously.
The undivided co-owners must also share the use of the property among themselves, since they all have the right to use and enjoy it, provided they do not interfere with the destination of the property or the rights of the other co-owners. This is, in a way, a form of good neighbourliness. If one of the co-owners has exclusive use of the property, he is liable for compensation. This often happens when a couple separates and only one of the spouses continues to occupy the residence for some time. The compensation is at the discretion of the court and may be based on the rental value of the property or on what it costs the other spouse to find reasonable accommodation elsewhere.
Finally, the undivided co-owners will have to share, in proportion to their share, the income and expenses relating to the property.
The exclusive right: the share
Each co-owner has exclusive ownership of their share and can, in principle, sell or mortgage it. Likewise, its creditors can seize it. However, the above is more theoretical than practical. In particular, the undivided co-owner will find it difficult to sell his share to a third party, since few people are interested in being in undivided co-ownership with a stranger.
In addition, in the event that one of the co-owners sells their share to a third person, any undivided co-owner may, within 60 days after learning of the fact, reimburse the new buyer to remove him from the undivided co-ownership. This right of withdrawal must be exercised within year from the sale. Similarly, an undivided co-owner who learns that a creditor intends to sell or take in payment the share of another undivided co-owner may pay the debt of the latter to satisfy the creditor. The undivided co-owner who has paid the debt may subsequently claim what he has paid from the co-owner who was the debtor of the debt.
No one is bound to remain in indivision
A fundamental rule of indivision is that no undivided co-owner is required to remain in indivision. This means that partition can always be brought about, with some exceptions.
The partition will take place either by the redemption of the other’s share or by the sale of the immovable to a third party, which will result in the sharing of the profit from the sale between the undivided co-owners in proportion to their share. In the event of disagreement on the value of the share, it will be determined by an expert, generally a chartered appraiser.
The indivision agreement
The indivision agreement allows the undivided co-owners to derogate from the rules provided by the law. It may, for example, deal with decision-making, the use of the property, the sharing of expenses and income, the terms and conditions concerning the end of the indivision, etc. Such an agreement will become the law of the parties. Sometimes, a few paragraphs inserted in the deed of purchase will take the place of an indivision agreement.
Although the rules of the Civil Code that apply by default may be suitable for most undivided co-owners, it would be prudent to, at least, consider various eventualities in order to determine whether an indivision agreement, even a succinct one, would not be appropriate in your situation. In all cases, whether preventive or curative,