Co-ownership contract: joint property rights

Owning something together, a home, a holiday house, a boat or a piece of land, is a very common situation. It applies to couples who buy a home before marriage, friends who share a holiday house, or siblings who inherit their parents' house jointly. The joint ownership is simple as long as everything works. The problems arise when one person wants to sell, one does not pay their share, or one dies.

A co-ownership contract, also called a co-ownership agreement, answers these questions before they arise.

What is co-ownership?

Co-ownership arises when two or more people own the same asset jointly. It can be real property, a vehicle, a work of art, a business or other assets.

In co-ownership, each co-owner owns a share, typically an ideal share expressed as a fraction (for example ½ or 1/3). No co-owner owns a specific physical part of the asset. Instead, everyone owns a share of the whole.

Co-ownership of real property is not governed by a single statute, but by general, unwritten legal principles and case law. A solid co-ownership contract therefore gives far better protection than the general starting points alone.

When does co-ownership arise?

Co-ownership typically arises in the following situations:

Buying a home without marriage

Couples who buy a home together without being married are protected neither by the division rules of marriage law nor by each other in a legal sense. A co-ownership contract is the central document that governs your rights and obligations.

Inheritance

Parents leave a property to three children jointly. Without an agreement, all three must agree on everything, both a sale, letting and renovation. A co-ownership contract prevents deadlocks.

Joint investment

Two investors buy a rental property jointly. The contract sets out the allocation of rental income, costs and the decision-making process.

Holiday house or leisure property

Siblings or friends buy a holiday house jointly. Who uses it when? Who pays the maintenance? A contract ensures that the good intentions stay good.

What should a co-ownership contract contain?

1. The co-owners' identity and ownership shares

State the names, civil registration numbers and addresses of all co-owners, and state precisely which share (fraction) each co-owner owns.

The ownership shares do not have to be equal. A co-owner who has put in 70% of the purchase price can own 70% of the property.

2. Financing and liability

Describe how the property is financed:

• Who has contributed what (cash savings, loans)?
• Are all co-owners jointly and severally liable for the mortgage, or are they liable only for their share?
• What happens if a co-owner cannot pay their share of the instalments?

3. Running costs

Set out how the costs are allocated:

• Mortgage instalments, property tax, insurance and joint costs
• Maintenance and repairs: who decides what, and who pays?
• A threshold for larger costs that requires all co-owners' consent

4. Use of the property

If the property is used by the co-owners themselves (for example as a home or holiday house), the agreement should govern:

• The allocation of periods of use (for example 50/50 in a holiday house)
• Who is responsible for maintenance during their period of use
• Whether the property can be let to a third party, and whether that requires consent

5. Sale and right of pre-emption

A co-owner can as a rule demand the co-ownership dissolved and the property sold if the parties cannot agree. To prevent an unwanted forced sale, the agreement should contain:

• Right of pre-emption: If a co-owner wants to sell their share, the other co-owners have the right to take over the share at market value (or an agreed price). State the deadline for exercising the right of pre-emption.
• Procedures on sale: Does a sale of the whole property require all co-owners' consent, and what is the process?
• Setting the price: Is the price set by agreement, or is an independent agent or valuer appointed?

6. Breach

What happens if a co-owner stops paying their share of the costs or the loan instalments?

• Can the other co-owners take over the share?
• Can the defaulting co-owner be forced out in some other way?
• Is there a prior warning procedure?

7. Death

What happens to a co-owner's share if they die?

• Can the heirs take over the share as co-owners?
• Do the other co-owners have a right of pre-emption in relation to the heirs?
• Is there a life insurance that can finance the takeover?

Without a clear agreement, the remaining co-owners risk being in co-ownership with the deceased's heirs, who may not want the property and just want the money out as quickly as possible.

8. Separation and divorce clause (for couples)

For couples who buy a home before marriage, the agreement should govern:

• What happens to the home on the end of the relationship
• Whether one party has the right to take over the home, and at what price
• Which deadline and procedure apply

Registration of the co-ownership contract

A co-ownership contract is binding on the parties from the date of signature. But for the agreement to have legal effect against third parties, including creditors and new owners, it can in some cases be necessary to register the agreement.

Right of pre-emption: A right of pre-emption that is to have legal effect against third parties (for example a potential new buyer) should be registered on the property. Otherwise, the right of pre-emption is only binding between the parties.

Ownership shares in real property: The ownership shares appear from the deed. If the ownership shares change, a new deed must be registered.

For co-ownership of movables (for example a boat or a work of art), registration is typically not possible or necessary.

Dissolution of the co-ownership

A co-owner can as a rule demand the co-ownership dissolved. Dissolution occurs either by:

• Voluntary sale: All co-owners agree to sell the property and share the proceeds
• Takeover: One co-owner takes over the others' shares at an agreed price
• Public auction: If agreement cannot be reached, the property can end up being sold at a public auction

A sale at a forced or public auction is often the worst outcome for all parties, because the price is typically significantly lower than in a voluntary sale. A clear co-ownership contract with a right of pre-emption and procedures minimises the risk of ending up there.

Frequently asked questions about co-ownership contracts

Is a co-ownership contract necessary for a married couple?

Spouses are protected by the rules of marriage law on assets and division. A co-ownership contract is typically not necessary for the division itself, which follows from the law. A co-ownership contract, possibly combined with a marriage settlement, can, however, give extra clarity about, for example, a holiday house or a commercial property.

Can a co-owner sell their share without the others' consent?

As a rule yes. A co-owner can freely transfer their ideal share. A right of pre-emption in the co-ownership agreement gives the other co-owners the right to take over the share on the same terms. Registration of the right of pre-emption gives that legal effect against third parties.

What is the difference between co-ownership and a housing cooperative?

Co-ownership is ownership of the same asset jointly. A housing cooperative is an association that owns the property, and the member's right is a share in the association, not in the property directly. The rules are very different.

Can the co-ownership agreement be changed?

Yes, with all co-owners' consent. The change should be documented in writing.

Does co-ownership of real property require a deed?

Yes, ownership of real property is registered via a deed, and on the purchase the deed states the ownership shares directly.

Conclusion

Co-ownership is simple but requires clear rules. A co-ownership contract prevents the conflicts that arise when life changes and a co-owner wants to sell, dies or stops paying. Ensure clear shares, a well-considered allocation of costs, a right of pre-emption and a procedure for a sale and dissolution, and have the parts that should bind third parties registered.

---

The content of this article is for guidance only and does not constitute legal advice. Consult a property lawyer for advice on your specific situation.