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Land co-ownership agreement: How-to guide 

A land co-ownership agreement is a contract between two or more people to own a piece of property together.

This legal document sets forth,

  • Each party’s right to use
  • The obligation to pay taxes and upkeep
  • Entitlement to profits
  • Transfer rights in the property 

An accurately written agreement will safeguard the owners’ relationships and avoid disputes due to one party’s intent to own the entire property. The protection offered by a contract can help reduce the chances of expensive disputes or litigation.

If you wish to own land collectively with one or more individuals, use a land co-ownership agreement. A properly drafted and executed contract can encourage a successful relationship between co-owners and lay the foundation for a profitable venture.

Understanding land co-ownership agreement

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Types of land co-ownership agreements

There are two most common types of land co-ownership:

  1. Tenancy in common: In this arrangement, two or more people (unrelated) can own different parts of the same property. These parts don’t have to be equal and can differ in size or shape. If a co-owner dies in this arrangement, their ownership interest will transfer to their heirs.  
  2. Joint tenancy: Usually created between married couples or family members who want their ownership interest to pass to each other when someone dies. In other words, when a co-owner dies, the interests transfer automatically to the other co-owners and not to the heirs. 

Number of co-owners for a property

There is no limit to the number of people who can co-own a piece of land. However, if you’re buying the property for investment purposes (e.g., as a rental property), certain tax implications may require limiting the number of co-owners. Talk to an accountant or other tax professional if you have concerns.

Relationship between the co-owners

Co-owners of a property shouldn’t function as business partners, shareholders, or business members. If your property is being used for purposes beyond a simple tenancy, you and the other owners may be subject to additional tax obligations.

Property maintenance

If you hire someone to maintain your property, consider signing a “power of attorney” in their name. This will allow the manager to conduct day-to-day business on your behalf without obtaining individual permission each time.

Property background checks

Perform a title search on any property you’re preparing to buy. Information about previous owners and existing liens is usually recorded with county offices.

Agreement registration in the county office

Record your document in the county where the property is located. This is extremely important as ownership interests aren’t fully protected until the document is recorded. The name of the county office involved with recording real estate instruments varies from state to state. It may be called the County recorder’s office, Land registry office, Registrar of titles, or Register of deeds.

Agreement review and signatures

Both parties should review the completed agreement carefully to ensure all relevant points are included. This will ensure that both parties know their responsibilities in the document. Even if certain terms are agreed upon verbally, include them explicitly in the document.

Each co-owner must save a signed copy of the agreement. Have your document notarized to limit the challenges to the validity of a party’s signature.

Contact a real estate attorney to help you draft the agreement according to your needs.

Key elements in land co-ownership agreements

An image of a couple holding an agreement and discussing the details of their property with their agents.

The following instructions will help you understand the terms of your agreement. Please review the entire document before starting your step-by-step process.

Introduction

This section identifies the document as a land co-ownership agreement. Add the effective date and the name of all the parties (co-owners) involved. All the co-owners involved in the agreement are collectively called “parties.”

Recitals

The “whereas” clauses, or recitals, define the agreement and provide background information about the parties. In this agreement, the recitals include a statement of the parties’ intent to enter into a co-ownership agreement to co-own the property.

Describe the property’s street address, city, county, state, and legal description. If this property is or has been in escrow, add the name of the escrow agent.

Ownership and title

This section states the ownership structure between the parties. The parties can consider themselves joint tenants in common, and each receives title as co-tenants. Each party can use, enjoy, and control the property according to the agreement.

Since this is joint ownership, enter each party’s name and the ownership percentage each will receive. This division may be equal or unequal.

Termination

This section mentions that the agreement will continue indefinitely until an undeniable scenario occurs, such as

  1. If the property is sold
  2. If the parties unanimously agree to end the arrangement
  3. If one party ends up owning the entire property

Tax matters

Given the many restrictions the Internal Revenue System (IRS) places on partnerships in which multiple parties own land together, it is essential to emphasize that your agreement is among separate individuals.

This section confirms that the parties are just co-owners of the same property and aren’t involved as partners. Therefore, they aren't subject to additional property tax payments as required by the IRS.

Decisions

This section explains how the major property-related decisions will be made, such as:

  • The parties must agree on the decision before hiring a new property manager, selling or leasing the property, or placing a lien on the property.
  • If the parties agree to hire a manager for day-to-day management of the property, they may also sign a renewal management agreement with that person or sign a power of attorney. This allows that person to manage the property without getting specific authorization every time.

Division of profits and losses

In this clause, state how the parties will share all earnings (like rental income) or pay any obligations related to the property in proportion to their interest.

For example, if one owner holds 30% of the property, they’ll be expected to pay 30% of the debts and receive 30% of the profits.

Events of default

This section outlines actions that may cause termination of the agreement by the other parties. Some examples are:

  • If one party fails to make payments and fulfill any obligations under the agreement and doesn’t rectify their action within a specific time period after the other parties’ request.
  • Since this is a jointly owned property, if a party transfers (or tries to transfer) their interest to an outside party without the other parties' permission.
  • If a party goes bankrupt.
  • If a party writes that it can’t continue to meet its general obligations (i.e., it is nearing bankruptcy or thinks that it’ll lose control of its property shortly).

Defaults and remedies

This section states the consequences if a “default” happens. Some of the possibilities are:

  • The non-defaulting party can choose to terminate the agreement without the defaulting party’s permission.
  • Any non-defaulting party can loan the money to a defaulting party that can’t make payments under the agreement.
  • If the defaulting party hasn’t repaid the loans, the amount might be deducted from any property-related profits they’re entitled to.

Sale of property

This section mentions the conditions each party must follow before selling their property, such as:

  • In a shared ownership, every party can sell their part of the property as a whole, i.e., without breaking it into subparts.
  • The party must notify the other parties and the manager of the property sale.
  • If the entire property is sold, any debts attached to it (e.g., lien or mortgage payments) will be paid first. The parties can later divide the leftover amount.

Restrictions on parties

This section restricts the number of co-buyers who can co-own the property. It also mentions each party’s rights to sell, transfer, mortgage, or dispose of their interests after providing the other parties the option to purchase. 

It also mentions whether the parties are allowed to run or conduct any other business on the property.

Lease agreements

This section mentions how the property leases and rent payments must be fixed for the tenant.

Death of a party

This section discusses the consequences of a party’s death, including who’ll continue making payments and receiving profits. It also states that according to “tenancy in common,” the death of one party doesn’t mean that the other owners get their interest—instead, the interest passes according to the deceased party’s will or other governing document.

Specific performance

In certain agreements, more than simply paying money to one party is required if the other party fails to fulfill its obligations. In such cases, a mere payment can’t resolve the situation. This section of the agreement specifies that the terms of the agreement must be strictly adhered to.

If a party fails to comply with the terms, the remedy is "specific performance." This means that the party would be required to follow the terms of the agreement either by the other parties involved or by a court ruling, if necessary.

Amendments

This section indicates that any changes to the document are only effective if they’re in writing and signed by all parties co-owning the property.

No implied waiver

This section explains that even if one party allows the other to ignore or break an obligation under the agreement, it doesn’t mean that the party waives any future rights to require the other to fulfill those (or any other) obligations.

For example, say one party is late making payments, but the other party doesn’t require any interest on those late payments. Later on, the non-defaulting party could tell the other party that it wants to collect interest, as provided in the agreement. If a party defaults and claims that a right was waived just because it wasn't enforced previously, the other party can still enforce it later.

Successors and assigns

This section states that the parties' rights and obligations will be passed on to heirs or, in the case of companies, successor organizations, or organizations to which rights and obligations have been permissibly assigned.

Notices

This section lists the mailing addresses of each party to which all official or legal correspondence should be delivered.

Governing law

This clause allows the parties to choose the applicable law that’ll be used to interpret the document.

Counterparts; electronic signatures

This section mentions that even if the co-owners sign the agreement in different locations or use electronic devices to transmit signatures, all the separate pieces will be considered part of the same agreement. This provision ensures the validity of the agreement as a whole.

Severability

This clause protects the terms of the agreement as a whole, even if one part is later invalidated. For example, if a state law is passed prohibiting IRS disclaimer clauses, it won’t invalidate the entire agreement. Instead, only the section dealing with IRS tax matters would be invalidated, leaving the remainder of the agreement enforceable.

Entire agreement

In this section, the parties acknowledge that the document they’re signing is “the agreement.”

Headings

This section explains that the headings in this document are for organization purposes only and shouldn’t be used to interpret the agreement.

Frequently asked questions

What's a land co-ownership agreement?

Whether you're buying to build or want to keep your land pristine, if you share it with others, put an agreement in place. A land co-ownership agreement details each party's rights to use the land, what taxes and upkeep they're responsible for, duties, and more.

What is the information needed to complete a land co-ownership agreement?

Here's the information you'll need handy to complete your land co-ownership agreement:

  • Who the owners are: Have the co-owners’ names and contact details ready
  • Where the property is located: Have the address and county details ready
  • What each owner's share is: Know what percentage of the land belongs to each co-owner
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