Undivided co-ownership in Québec: definition, purchase, management and exit
In Québec, the right of ownership is defined as the right to use, enjoy and freely and fully dispose of property, subject to the limits and conditions of exercise set by law. Moreover, the right of ownership is protected by the Charter of Human Rights and Freedoms, which states that “Every person has a right to the peaceful enjoyment and free disposition of their property, except to the extent provided by law.”
Among the many limitations is the holding of property in co-ownership, particularly in real estate matters. Indeed, as access to homeownership in the real estate market has become increasingly difficult due to rising property prices, notably since the pandemic period, acquiring a property in co-ownership appears to be an attractive solution. Before purchasing this type of property, it is important to ensure you fully understand undivided co-ownership.
Definition and principles of undivided ownership
There is often confusion between divided co-ownership and undivided co-ownership. Both are governed by the Civil Code of Québec.
Divided co-ownership is a legal structure in which a building is divided into private portions (units, parking spaces, etc.) owned by individuals, and common portions (structure, land) owned by all.
Undivided co-ownership is a legal situation in which several persons (undivided co-owners) jointly own the same real property, without a physical division into private portions. Each owner holds a share (percentage) of the entire building.
Thus, in undivided ownership, several owners jointly hold the same building without distinct private lots, and each holds a share of the whole. The use of rooms or dwellings may be allocated by an undivided co-ownership agreement. All decisions must be made in accordance with the rules set out in the Civil Code of Québec and in the agreement.
Undivided ownership may apply to various types of real property, including houses, duplexes or triplexes, undivided condos, and buildings received by inheritance.
Undivided co-ownership or divided co-ownership: key differences
Purchasing a co-ownership requires particular attention, whether undivided or divided. Unlike divided co-ownership, which is based on dividing the building into private lots and common portions managed by a syndicate, undivided co-ownership is characterized by the absence of distinct lots, with co-owners instead holding a share of the building together with rights of use.
This distinction has major practical implications regarding civic address, cadastral registration, management rules, allocation of expenses, the sale process, and financing options.
For the buyer, the consequences mainly relate to the degree of freedom, specific banking constraints, the conditions for reselling their share, and the building’s governance arrangements.
Rights of undivided co-owners
Undivided co-owners enjoy key rights, including the right to use and enjoy the building in accordance with its purpose, voting rights proportional to their share, access to information on management, and the ability to sell their share subject to the conditions set out in the undivided co-ownership agreement.
It is common for the agreement to provide exclusive rights of use over certain areas such as parking, storage, the yard or the terrace. In addition, a right of first refusal among undivided co-owners may be stipulated, giving the others priority to purchase if a share is put up for sale.
Obligations, common expenses and insurance
In return for their rights, undivided co-owners are subject to obligations. They must ensure the preservation and maintenance of the building. They must also assume the related expenses, including payment of taxes, insurance premiums, and maintenance and repair costs, all in proportion to their share or as provided in the agreement. The agreement must also provide for the allocation of major expenses and, ideally, the creation of a contingency fund for any breakage or urgent renovations. It is imperative to obtain homeowners’ insurance suited to undivided co-ownership, adequately covering the building, civil liability and improvements.
Purchase and financing in undivided co-ownership
The cornerstone of the transaction is the undivided co-ownership agreement, an essential document whose drafting and publication are mandatory and fall under the notary’s responsibility.
This agreement must define the rules of undivided co-ownership through substantive clauses, including:
- exclusive use of private portions;
- allocation of expenses and majority thresholds for decisions;
- the right of first refusal and the terms for valuation and exit of undivided co-owners.
Preliminary verifications (inspections, compliance, municipal by-laws, property condition) are also essential to secure the purchase.
As for financing, several structures are possible (a joint loan covering the entire building or individual loans secured by a mortgage on the co-owner’s share). Lenders generally make the loan conditional on publication of the undivided co-ownership agreement, adequate insurance coverage, and a substantial down payment.
Management and governance in undivided co-ownership
Day-to-day management is governed by the undivided co-ownership agreement, which defines decision thresholds (simple majority, qualified majority or unanimity) depending on the nature of the work or dispositions. It is strongly recommended to hold meetings regularly, including an agenda, minutes, adoption of an annual budget, and the implementation of mechanisms to solicit competing bids from suppliers. Mediation or arbitration clauses are essential to prevent deadlocks and to address failures to meet obligations.
Exiting undivided co-ownership
Exiting undivided co-ownership generally involves selling the share, requiring a clear valuation process and formal notice to the other undivided co-owners for the possible exercise of the right of first refusal. Scenarios for ending undivided co-ownership include the full sale of the building, the buyout of a share by one or more undivided co-owners, or, as a last resort, judicial partition.
Typical risks inherent to this legal regime include disputes between co-owners, underfunding, lack of insurance coverage, the absence of a contingency fund, and imprecise clauses in the agreement. The rigor of the undivided co-ownership agreement is therefore the key to the security and sustainability of this type of ownership.
Request a consultation with Juriséo to secure your undivided co-ownership agreement.
To go further
- Is a notarized undivided co-ownership agreement required to purchase in undivided co-ownership?
The undivided co-ownership agreement is an essential document whose drafting and publication are mandatory and fall under the notary’s responsibility.
- How does a lender finance a share with exclusive use?
It is possible to obtain a joint loan covering the entire building or individual loans secured by a mortgage on the undivided co-owner’s share.
- Who pays municipal taxes and major work in undivided co-ownership?
Municipal taxes and major work are paid by the undivided co-owners.
- How can you exit undivided co-ownership if one co-owner refuses to sell?
If one of the undivided co-owners refuses to sell and the other exit scenarios (full sale of the building, buyout of a share by one or more undivided co-owners) cannot be carried out, judicial partition is the ultimate recourse to bring undivided co-ownership to an end.
- Does the right of first refusal apply automatically between undivided co-owners?
The right of first refusal does not apply automatically between undivided co-owners. A right of first refusal among undivided co-owners may be stipulated in the undivided co-ownership agreement, which means it must be expressly provided for in the document in order to exist.
