Divided or undivided co ownership? Learn the differences

Condominiums are an interesting choice for those looking to purchase a new home. There are two types of condominiums: divided and undivided. Understanding the details of each will help you decide which one is best for your needs.

While both options claim individuality as well as collective responsibility, it is important to weigh all factors before committing to either type of arrangement.

Define divided and undivided properties

Divided

In the case of a divided condominium, each unit is independent of the others and has its own cadastral number as a separate legal entity. A deed is created for each unit, with its own terms and conditions governing the ownership and use of the property. In addition, each co-owner owns a percentage of the common areas corresponding to the percentage of his or her unit in the building.

Divided co-ownerships are also governed by a mandatory legal document: the declaration of co-ownership. This document sets out the common rights and obligations of the co-owners of the building. The declaration of co-ownership covers, among other things, the use of common areas. It also sets out certain rules regarding the private portions.

Undivided

Undivided co-ownership is often found in the form of a duplex, triplex or quadruplex or two old buildings. It is a form of common co-ownership which has only one cadastral number and this number becomes the property of all the co-owners who live in it. The co-owners have exclusive use of their individual part of the building, over which they also have exclusive rights.

Undivided ownership takes many forms. The most common is the purchase of a percentage of a building with the use of an apartment, but there is also the purchase of shares with the exclusive use of an apartment. The corporation is the owner of the building. In these cases, there is no transfer tax on the purchase, unlike in the case of divided and undivided co-ownership.

Both forms have their respective advantages; while divided ownership offers greater security and control of one’s assets, undivided ownership offers greater tax advantages. On the other hand, while divided ownership depends on payments from several people to continue to function, the lack of contribution from some owners in an undivided agreement could conflict with the rights of other parties to access the property.

Leasing a condominium

In the vast majority of cases, you can rent a divided condominium. This is a great advantage if you plan to be away for a long period of time, for example, to work outside the country or to travel. Renting is also an interesting option if your purchase is a real estate investment.

The same cannot be said for undivided co-ownership. In fact, this type of condominium can never be rented. This is because, even if you and the other co-owners agree to allow renting, the rules of the mortgage generally prohibit you from renting your unit during your absence and the rules of the housing administrative tribunal make the tenant a super tenant and repossession is not allowed.

Short-term rentals & Airbnb

Short-term rentals have been regulated in Quebec and several adjustments have been made to reflect the reality of the market and to ensure that the coercive measures in place allow for compliance with the regulations. Being very popular in condominiums, many condominium owners will indeed buy a condominium only to rent it through platforms such as Airbnb.

According to article 1065 C.c.Q., a co-owner can rent out his unit but he must comply by notifying the Syndicate. The duration of the rentals is the element to be taken into account before wanting to rent it out on a short term basis. A condominium is a living environment regulated by a declaration of co-ownership and its regulations.

The majority of syndicates will prohibit short-term rentals to ensure the tranquility of the premises for their residents first. Short term rental rhymes with parties, comings and goings, non-respect of regulations… Therefore, if you are a co-owner, you must first read the declaration of co-ownership of the building as well as the by-laws in effect in order to verify if short-term rentals are authorized.

Restrictions in downtown Montreal

There must be at least 150m between each short-term rental unit. In addition, in certain areas of the downtown core, it is prohibited to own a rental property for seasonal rental.

Restrictions in Southwest Montreal

In order to receive a classification certificate, your short-term rental unit must fall under the category of bed and breakfast or apartment in the borough.

Restrictions in the Plateau-Mont-Royal

This borough has recently adopted regulations that restrict short-term rentals in specific areas. The authorized zones are on St-Laurent Boulevard between Sherbrooke and Mont-Royal streets and on St-Denis Street between Sherbrooke and Gilford streets. Within this zone, you must acquire a classification certificate (unless you already have one). If you rent your principal residence, you do not need to obtain a classification certificate.

Buying, selling & financing

Mortgage financing is certainly the major difference between the two types of condominiums.

Traditional condominiums and divided property require the same requirements and procedures as for the purchase of a single-family home, for example. Each condominium owner has a choice of financial institution.

For undivided co-ownership financing, each co-owner has his own mortgage. If the co-ownership is governed by a good undivided co-ownership agreement, two financial institutions offer limited liability mortgages on each of the shares of the building. This implies that the co-owners must have their mortgage at the same institution. Each co-owner is responsible for his or her own debt, as in a divided co-ownership. Thus, the other co-owners are protected in case of default of payment, and only the share concerned can be seized by the creditor.

In addition, and this should not be underestimated, purchasers of undivided condos must meet a higher down payment requirement: 20% or more. This substantial down payment requirement serves to ensure that buyers are financially qualified to invest in the condo project.

Syndicate and co-ownership agreement

A deed of co-ownership is often an essential element when dealing with any type of property or condominium.

Divided co-ownerships are administered by a board of directors called the syndicate of co-owners. This board is made up of certain co-owners, but sometimes uses an external condominium manager who is responsible for the maintenance of the building and the common areas.

Since its mode of operation is often well regulated, divided co-ownership is a good option if you do not want too many responsibilities related to its management. It is good to know that in Quebec, divided co-ownership is governed by Bill 141 specific to co-ownership. The declaration of co-ownership and the management must therefore comply with the rules set out therein.

In the case of undivided co-ownership, the document used to govern the co-ownership is called the Undivided Agreement. Although strongly recommended, the undivided co-ownership agreement is not mandatory. It may include, among other things, the method of operation and management of the co-ownership as well as the respective percentages of the property owned by each co-owner.

Since decisions are made by all the co-owners, undivided co-ownership can be interesting if you wish to play a more active role in its management. On the other hand, since its framework is less well defined, its management is more dependent on the good understanding between the co-owners.

Although undivided co-ownerships do not all have the same legal obligations, they must still be well managed and as close as possible to the standards of divided co-ownerships if they do not want to be at a disadvantage when reselling. In addition, the creation of a contingency fund to deal with any unforeseen event can be beneficial, although not mandatory, for the undivided co-ownership.

Fees & taxes

In a divided condominium, you pay for more services, and fees related to the maintenance of the building. Divided condominiums operate with what is called a condo fee. The amount of these fees varies according to the size of the building and its common areas as well as the services offered (elevator, pool, common room, gym, etc.).

The condo fees include: the maintenance of the building, the home and civil liability insurance of the building, the civil liability insurance of the syndicate of co-ownership and of the administrators of the building, the contingency fund to cover emergency work and the self-insurance fund to cover the various deductibles that the syndicate of co-ownership must pay following a disaster.

Since divided co-ownerships are governed by specific laws concerning insurance and funds, the costs incurred are generally higher than in the case of an undivided co-ownership. But this is not always the case.

Municipal and school taxes are not included in the condo fees: as each unit has its own cadastral number, each co-owner has his own municipal and school tax accounts.

For undivided co-ownership, you share all the costs of the building.

For undivided co-ownership, there is no specific law that dictates what the common expenses must cover. All the co-owners are jointly and severally responsible for the entire building. They must therefore agree on the amount to be paid each year to ensure the maintenance of the building and to set up a contingency fund.

The undivided co-ownership fees include: the maintenance of the building, the amount of these fees varies according to the size of the building and its common areas as well as the services offered (elevator, swimming pool, common room, gym, etc.), home insurance and civil liability insurance. ), the home insurance and civil liability of the building, the civil liability insurance of the administrators of the building, the contingency fund to cover emergency work, the self-insurance fund to cover the various deductibles that the syndicate of co-ownership must pay following a disaster, and to all of this we must add the municipal and school property taxes of the building.

REALTA’s advice

Before you buy, don’t forget to check the minutes and financial statements for the last three years of the condominium. You will find a wealth of information, including the amount of money accumulated in the contingency fund and the self-insurance fund, to name a few.

You now know the difference between a divided and undivided co-ownership, you are better equipped to choose!

And because buying a condo is not only about the legal concepts of division and undivided ownership, consult a REALTA broker.