Greenbook: A Local Guide to Chesapeake Living - Issue 3 | Page 39

part, he or she would sell his or her
interest in the property. This is
because it would not be feasible to
divide the house down the middle and
each own respective portions. The
buyer would get the same rights and
interests as the seller had. If you are
buying a house together as a rental
property, each tenant would be
entitled to a portion of the rental
income, proportionate to his or her
share.

Compose a Written
Co-Ownership Agreement
Some people make the mistake
of assuming that any issues or
disagreements that arise will be
worked out when the time comes.
This approach can put a lot of strain
on you, your time, your money, your
relationship, and can even end up with
you in court. Instead, try and think
of anything that may arise during
the course of your co-ownership, and
write out what should happen in those
instances. After the agreement is
satisfactory to all tenants, each of you
should sign it. Below are some issues
that you absolutely should include in
your agreement.
What is each tenant's fractional
ownership?
This is probably the most important
agreement to be made, since it affects
the property once you decide to sell
your share, or after you die. This
decision is easy if you have a
JTWROS. In that case, you simply
divide your interest into equal parts.
For example, if there are two of you,
you would each agree to divide your
shares 50/50.
If you have a TIC, you have more
options, because you don't have to
divide your interests 50/50. Instead
you can divide the shares into
fractional ownership. Some people
decide who owns what based on how
much money each tenant contributes.
You could also agree that tenant
A is going to receive a larger share,
because of all of the maintenance she
does; or that tenant B deserves a
larger share, because he pays all of

the property taxes each year.
However you want to divide it up is
fine, just as long as you all agree.

How will ongoing expenses
be paid?
Ongoing expenses, like mortgage
payments, property taxes, utilities,
maintenance costs, and insurance
premiums should all be allocated
according to what all of the tenants
thinks is fair. Some people decide to
split everything completely equally.
Other people divide it based on the
same percentage as ownership, or
based on the percentage of a down
payment each person made. Many
times, if the home is a vacation home,
the tenants divide up the expenses
based on how much time each tenant
will use the home.

How does a tenant destroy his or
her interest?
You have every right to destroy your
interest in the property by conveying
your interest to someone else. You do
not need any of the other tenant's
permission to do this, as it is your
property right to keep or sell your
interest as you wish.
The affects of destroying your
interest vary depending on whether
you are in a TIC or a JTWROS.
Without a co-ownership agreement, in
a TIC, the tenant wishing to destroy
his or her interest may obtain a
partition of the property. A
partition of the property divides any
land into distinctly owned lots.
Sometimes, especially with a house,
this is not possible. In that case, a
forced sale of the property could be
conducted, with the proceeds being
divided according to shares. Each
co-owner is entitled to the right of
a court-ordered partition. The good
thing about determining who owns
what percentage ahead of time in a
co-ownership agreement is that you
can avoid the court's interference in
partitioning. In your agreement you
can also waive the right of partition.
When a JTWROS tenant terminates

his or her interest, the remaining
co-owners keep their JTWROS
between them and remain joint
owners of the remaining interest.
If the terminating tenant conveys
his or her property to a third party,
however, that third party owns his
or her share on a TIC basis with the
other tenants. The original tenants
still preserve their joint tenancy
interest between each other, while
the new tenant is a tenant in common
with the other two.
This result arises because the timing
is different. The original tenants all
received their interest in the home
at the same time, whereas the new
tenant received his or her interest at
a later time. If all the tenants wish
to maintain a joint tenancy, then all
of the original tenants must transfer
the joint interest of the remaining
joint tenants and the new joint tenant
together, in one instrument. Absent an
agreement that specifies otherwise,
this is what happens when a tenant
breaks or destroys his or her interest.
One way around the default approach
is to actually specify in the co-ownership agreement that a selling co-owner
must preserve an opportunity for the
remaining tenants to purchase the interest before any third party. Adding
this provision makes sense; however,
you must also think about how you will
fairly assess the property value at
that time, whether the remaining
co-owner must accept the sale
offer, and what will happen if the
remaining co-owner does not have
sufficient funds to accept the sale
offer.
Buying a house together has its perks,
as long as all the parties involved are
thoughtful and careful in deciding
what will work best for each of them.
Often times, it is a good idea for each
of them to consult an attorney who will
look out for their individual property
interest.
Source: Findlaw.com.
Reprinted with permission from
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GREENBOOK | SEPTEMBER - OCTOBER 2014

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