Creating Your Legal Agreement: Planning for Future Scenarios

It’s impossible to foresee all future changes, and you or your co-owners might want to exit your co-purchasing arrangement. Members of your purchasing group must agree on how and when your property will be divested (disposed of, sold, etc.). To navigate this, here are essential points to consider:

• Extended Absence: If a member wishes to leave the property for an extended period, will this trigger a sale or assignment of their share?
• Default: What will happen to a member’s share if they default on their legal obligations?
• Property Sale: What events will trigger the sale of the entire property?

We recommend developing clear answers to these questions. All parties need to be on the same page about events that trigger a property sale, default, and general exit strategies.

Default

Lenders today don’t recognize fractional mortgages, so a single member’s default affects the entire group. Default provisions must be clearly outlined, considering not only the act of default but also the circumstances and relationships within the group. For example, if the defaulter has elder care obligations, this may influence the legal actions taken.

Desire to Leave

Sometimes group members want to leave of their own accord. To prepare for this, your group should consider how to handle a member selling their share. Will the share be sold back to other members, or listed for sale?

Death and Inheritance

Whether your property is under a tenants-in-common or joint tenants agreement affects how death and inheritance are treated.

• Joint Tenants: The right of survivorship means the deceased’s interest automatically passes to the remaining co-owners, overriding any will provisions.
• Tenants-in-Common: Each owner’s share becomes part of their estate, distributed based on their will. It's crucial to have a clear will for each member.

Both the co-ownership agreement and each member's will should be examined by an experienced lawyer to ensure clarity and alignment.

Marriage, Children, and Divorce

Co-purchasing with a life partner within a group adds complexity. In these cases, an agreement should address the relationships of all parties. A marriage contract, addressing asset treatment during and after marriage, is often recommended.

• Legal Agreement: This outlines the group's rules, exit strategies, and financial obligations.
• Marriage Contract: This deals with issues specific to life partners, like asset equalization and trust provisions.

Consider including scenarios like the birth of a child or a partner going on maternity leave. Outline how these events impact the group and address them in both the legal and marriage contracts.

Potential Future Scenarios

A Change in Your Purchasing Group

Scenario A: A member leaves but wants to maintain their equity. Questions to answer:

• Can the partner sublet their space?
• Who decides on sublet candidates?
• Who vets renters for fit and ability to pay?

Scenario B: A member wants to leave and sell their equity. Questions to answer:

• What notice must be given?
• Do other group members have first refusal rights to buy out? If yes, for how long?
• How are new members added?
• Who handles the appraisal and sale of the member’s equity?

Scenario C: A member defaults on their obligations. Questions to answer:

• What defines the frequency and manner of default making a member non-viable?
• How is a member’s viability decided?
• What notice is given to terminate the agreement with the defaulting member?
• Do other group members have first refusal rights to buy out? If yes, for how long?
• How are defaults remedied in the sale?
• Who handles the appraisal and sale of the member’s equity?

Serious Damage to the Home

Questions to answer:

• Does the group agree that home insurance pays for natural disasters or unforeseen damage?
• What insurance do individuals need?
• Are there specific insurance requirements for individuals with special equipment?

Death and Inheritance

Questions to answer:

• Is a member’s equity share separate from their estate?
• Is this consistent with their will?
• Do family members have a role in selling the equity?
• Do other group members have first refusal rights to buy out? If yes, for how long?
• How are new members added?
• Who handles the appraisal and sale of the member’s equity?

Marriage, Children, and Divorce

Scenario A: A couple splits. Questions to answer:

• Are life partners' equity combined or separate?
• Is this consistent with their marriage contract?
• Does the remaining partner have first refusal rights to purchase the equity? If yes, for how long?
• Do other group members have second refusal rights to purchase the equity? If yes, for how long?
• Can the remaining partner bring in a new life partner?
• Who handles the appraisal and sale of the equity?

Scenario B: A single member takes on a life partner who moves in. Questions to answer:

• Can other group members approve or disapprove the new life partner?
• Do decision rights change? If so, how?
• Does equity change? If so, how?
• Is this consistent with any marriage contract?
• What are the requirements and timing for compensating existing group members for equity changes?
• Who handles the appraisal and transaction?

Scenario C: A group member has children. Questions to answer:

• Is the existing agreement still viable?
• Do decision rights change? If so, how?
• Does the Group Agreement change? If so, how?
• Does equity change? If so, how? Is this consistent with any marriage or other contract?
• What are the requirements and timing for compensating existing group members for equity changes?
• Who handles the appraisal and transaction?

Even the most amicable arrangements will encounter situations impacting or changing your co-living situation. Prepare for potential futures before they arise by discussing and making decisions around these scenarios as a group. Include these outcomes in your legal agreement to ensure clarity and cohesion.

How Do You Create Your Legal Agreement?

Click on the sections below to learn more.

1. Creating Your Legal Agreement: An Introduction
2. Creating Your Legal Agreement: Understanding Joint Tenancy and Tenants-in-Common
3. Creating Your Legal Agreement: Rights and Responsibilities
4. Creating Your Legal Agreement: Defining Financial Obligations
5. Creating Your Legal Agreement: Planning for Future Scenarios
6. Creating Your Legal Agreement: Essential Legal Steps and FAQs