When browsing through condos for sale on Centris, you might have noticed a tag indicating whether the property is an undivided or a divided co-ownership. It’s easy for an inexperienced home buyer to skim over this detail, but doing so would be a grave mistake. In reality, the choice between an undivided and a divided co-ownership can make a world of difference when it comes to your homeownership experience or your financial investment.
Be sure to check each Centris PDF to determine whether a property is listed as a divided or an un-divided co-ownership:
What’s the difference between an undivided and a divided co-ownership?
A divided co-ownership is far more common, and represents what most people imagine when they think of a “condo.” In a divided co-ownership a homeowner privately owns their own unit, along with other condo amenities such as garages and balconies, but shares common areas (such as lobbies, the rooftop terraces, elevators, etc) with other homeowners in the building. Each co-proprietor is responsible for his or her own mortgage, the maintenance of their private portions, and must also contribute towards maintenance of the common areas in the form of condo fees. The management of a divided co-ownership is overseen by a syndicate, but all co-owners have the right to vote on matters that will affect the collective.
An undivided co-ownership, on the other hand, does not include a clear division between private areas and common areas. In an undivided co-ownership, the entirety of the building is owned collectively by all the proprietors – the way one would own shares in a business. Lending institutions will grant a single mortgage loan to a group of individuals, after approving the financial capabilities of each borrower. Therefore, every co-owner is responsible for each other’s payments – if one homeowner is unable to pay their mortgage fees, the other homeowners will need to cover his or her share to avoid being penalized. Co-owners are also jointly responsible for municipal taxes, school taxes and building insurance.
Undivided co-ownerships also require a larger downpayment (20%) and are only financed by 2 banks: “The National Bank” and “Caisse Populaire.” The lender will already be involved when you make an offer to purchase, so you won’t be able to shop around and choose the best rate the way you would with a divided co-ownership.
Most importantly, undivided co-ownerships come with a big drawback: you can’t rent out your unit. Even with the permission of your co-owners, the rules of mortgage lending will forbid you from signing a rental lease. Why? Because Quebec’s Régie du Logement prohibits you by law from repossessing a dwelling in an undivided co-ownership, unless the tenant voluntarily decides to leave. That means, if you get stuck with a nightmare tenant who refuses to pay rent and also refuses to leave, you have zero legal recourse.
So… why would anyone buy an undivided co-ownership?
Buying an undivided co-ownership comes with three big advantages:
- A much smaller price tag: the risks of buying an undivided co-ownership are generally countered by their affordability. When starting your property search on Centris, you will quickly notice that many of the best “deals” listed below market value are, in fact, undivided co-ownerships.
- Lower taxes: undivided co-ownerships fall under a single tax bill and for that reason, municipal and school taxes are generally much lower.
- More flexibility: Structured undivided co-ownerships allow more flexibility when it comes to drafting out the agreements between shareholders, known as the “indivision agreement.” For example, co-owners can choose to allocate the proportion of common expenses differently based on the share of each co-proprietor.
An undivided co-ownership is well suited to a buyer who is planning on occupying the condo as a primary residence, and who is willing to endure the associated risks in exchange for price reduction.
Can you convert an undivided co-ownership into a divided co-ownership?
Conversion of an undivided co-ownership into a divided co-ownership will be permitted under the following conditions:
- All dwellings in the immovable are occupied by undivided owners.
- The building does not belong to a housing co-operative, a non-profit organization, or a housing assistance program. Many of the welfare assistance programs launched by the federal government are housed in undivided co-ownerships.
- The building is not located in the agglomeration of Montreal. However if the borough council has granted a waver, this rule could be subject to an exception.
What is the step-by-step procedure for converting an undivided co-ownership into a divided co-ownership?
1 – Apply for authorization from the Régie du Logement
The first step for any person wishing to convert a building from an undivided into divided co-ownership is to verify whether the building needs authorization from the Régie (rental board). The special ruling is absolutely necessary if the building has had at least one “dwelling” (a unit which has been rented to a tenant) within the past 10 years.
This first step could result in lengthy delays, so it it recommended to initiate the application as soon as possible, under consultation of a lawyer.
2 – Preparation of the cadastral plan and of the declaration of co-ownership
Homeowners should retain the services of a land surveyor, who will prepare the cadastral plan, and a notary to draft and publish the declaration. The chosen notary should have experience in converting an immovable into a divided co-ownership, as the formal steps to obtain permission are complex.
3 – Complete your “Notice of intent to convert”
Under this step, all homeowners must give their permission towards the conversion of the property concerned. A copy of each notice of intent to convert must be mailed to the Régie du Logement.
4 – Apply to the municipality
A document must be obtained from the municipality in which the property is located. The procedure will vary from municipality to municipality. If the property is located in the urban agglomeration of Montreal, a special waver will also be required.
5 – Apply for authorizations by the Régie
At this point, landlords have 6 months to submit their application to the Régie, along with associated fees.
6 – The hearing
Once the application is approved, the Régie shall notify all parties of the time and date of the hearing. All applicants must physically attend the hearing, or mandate a spouse or lawyer to represent them. Applicants must bring proof of notice of the application and proof that the notice to conveyed was conveyed to all tenants.
7 – Posting the notice
A public notice must be posted in front of the building, including the statement that any person may make a written representation within ten days of the notice being published.
8 – The decision
Lastly, the Régie will convey a copy of its decision to all applicants and related parties.
Specifically in Montreal…
Along with the special waver associated with properties within the urban agglomerate, homeowners must take into consideration that several Montreal boroughs impose a tax known as “park tax” for any conversion project representing 10% of the value of the land on which the immovable is located.
All in all, converting a building from an undivided co-ownership to a divided co-ownership is possible, but it is a complex process. Buyers considering a conversion should keep in mind that it is wiser to retain the services of qualified professionals, rather than attempting the procedure on their own.
This article, How To Convert an Undivided Co-Ownership into a Divided Co-Ownership: Montreal, appeared first on Shupilov Real Estate