Buying a house with someone is a big decision and raises a lot of legal issues. Many of these issues are specific to the province where you live and your unique circumstances. The following information is not legal advice, and does not take the place of consulting with a licensed lawyer in your area.
There’s been a lot of news lately about the housing markets in many cities across the country.
The real estate market in Canada has become, well, expensive. Many people used to be able to buy houses on their own, but these days that has become a lot more difficult and not everyone can get into the housing market on their own.
The market is adapting to this trend and we’re now seeing mortgages designed for exactly this situation, but there are legal issues that that need to be considered as well.
TYPE OF CO-OWNERS
One of the first things to consider is how to structure the ownership. Specifically, you can be “joint tenants” or “tenants in common”. The main difference, practically speaking, is what happens when you die; if you are “joint tenants” then the surviving homeowner will automatically own the whole house when the other owner dies. For “tenants in common” each owner has a certain interest in the house, and they can leave it to anyone they choose. Typically, married (or even unmarried) couples will decide to be “joint tenants” if their intention is that the surviving spouse will own the whole house when the other one dies. Other types of co-owners will more often choose to be “tenants in common” so that each retains ownership of a piece of the house, and they can each leave their piece to someone when they die.
PUT EVERYTHING IN WRITING
When deciding to buy a house with another person, it is extremely important to consider what may happen down the road, and to put this in writing. Our lives may not look the same in five or ten years as they do right now, and it is always best to have an agreement in place that says how you will deal with certain situations. For example, what if one co-owner wants to sell the house and the other doesn’t? Will there be a mechanism for one co-owner to buy out the other and, if so, how will a fair price be set? What if one wants to do a major remodel of the house and other is happy letting it age? Thinking about the major disagreements that may happen and deciding how to solve them will make co-ownership smoother in the long run.
OUTLINE WHO PAYS FOR WHAT
Another thing to consider when buying a house with someone is that person’s financial outlook. Whereas couples will often understand the finances of their partner, friends may not have had the chance to get to know that side of each other. Even if mortgages are being set up separately, it’s important to trust that your co-owner will be able to pay their bills. This also goes for things like hydro, internet and insurance. Some people will formalize a system of saving money for repairs. Whether you open a joint bank account or just make an agreement, this is an issue that’s very important to address. If the roof caves in tomorrow, do both people have enough money to get it fixed?
Along the same lines as repairs, co-owners should agree about maintenance and what will be joint expenses. In some cases, a house will be physically split so that each co-owner has their own unit, and sometimes both people will occupy the whole house. Either way, it is important to agree on what types of maintenance will be done and paid for by both people, as opposed to esthetic changes that may be important to one person and not another. All of these things should be put into writing so that down the road there is some clarity if there is a disagreement.
RULES FOR OWNING A HOUSE WITH A COMMON LAW SPOUSE
When buying a house with a significant other, it’s important to recognize that in many provinces, there’s still a difference between a married couple and a common law couple. Specifically, in marriage, the home that is occupied by the couple enjoys a special status, and special rights attach to it. One significant right is that, in most cases, both people get to share in the value of the house if they get divorced, regardless of who initially bought the house. In many provinces, common law couples are excluded from this way of dividing the property so that if one person bought the house, it will remain that person’s property if they separate. There have been challenges, in many cases successful, but it is far less certain than having an agreement that outlines the couple’s intentions with respect to the house and how it is to be divided in the event that they separate or one dies.
Home co-ownership can be a very useful tool, helping people to get into expensive housing markets and allowing for costs and work to be shared. But everyone should go in with their eyes wide open! There should be conversations and a written agreement dealing with everything from finances to home repairs, to life events that could take place and how the house should be dealt with down the road. If there is a clear understanding of how co-ownership will work, it will be an easier process for everyone.