Divided co-ownership and undivided co-ownership: Key differences

12 July 2022 by National Bank
undivided co-ownership

Whether you're shopping for your first condo or looking for your next investment property, you've probably seen the terms "divided" and "undivided" co-ownership in listings. Do you understand what the difference is? Do you know which type of property would be best for you? We'll explain everything by focusing on the 4 main points that distinguish a divided co-ownership property from an undivided property.

Divided co-ownership and undivided co-ownership: Key differences

Before we get into details, let's start by defining divided co-ownership and undivided co-ownership:

  • In a divided co-ownership, each unit is separate from the others and has its own lot/cadastre number. Each co-owner also owns a percentage of common areas proportional to the size of their unit.
  • Divided co-ownership is commonly found in buildings that are duplexes, triplexes or quadruplexes. It can also be used when a building is inherited by several people. Under this form of co-ownership, there is only one cadastre number for the whole building, which is jointly owned by all co-owners. Co-owners each have exclusive use of their individual part on which they can exercice exclusive rights.

Good to know: A condo is not necessarily a divided co-ownership; it can also be undivided.

1. Purchasing the property: Down payments and mortgage loans

Divided co-ownership: Lower down payment

For a divided co-ownership, the minimum down payment is 5% of the purchase price. This makes it a more accessible option.

N.B.

If your down payment is less than 20% of the purchase price of the property, you will need to take out  mortgage loan insurance (e.g., with CMHC) .

Undivided co-ownership: Set aside more for the down payment

If the property you want to buy is an undivided co-ownership, the minimum down payment will be 20% of the purchase price. You will therefore need to set aside more money for the purchase. The good news? This down payment percentage means you won't need to take out mortgage loan insurance. Your payments will therefore be lower because they won't include mortgage loan insurance premiums.

Your mortgage loan

For an undivided co-ownership

You will have to obtain a mortgage from the same financial institution as the other co-owners.

Generally, each co-owner in an undivided co-ownership property has their own mortgage. If the co-ownership property is governed by a good undivided co-ownership agreement, financial institutions can offer limited liability mortgage loans on each share of the building. This means that each co-owner is liable for their own debt, and the other co-owners are protected in the event of default. Only the share belonging to the co-owner who defaulted can be seized by the creditor.

In rare cases, like when a property is inherited, all co-owners may be signatories on the same loan. They are therefore jointly responsible for the entire loan.

For a divided co-ownership

You can choose any financial institution, which means you can obtain more favourable conditions that are better suited to your needs.

2. Administration of divided and undivided properties

Divided co-ownership: Declaration of co-ownership

Divided co-ownerships are governed by a mandatory legal document: the declaration of co-ownership. This document sets out the rights and shared duties of the building's co-owners. The declaration of co-ownership governs the use of common areas. It also sets out some rules regarding the private portions.

Who administers divided co-ownership properties?

Divided co-ownership properties are administered by a board of directors or syndicate of co-owners. It may hire an external condo manager to maintain the building and the common areas.

Since the way it operates is more strictly defined, a divided co-ownership is a good option if you don't want to take on too many management responsibilities.

Good to know:

In Quebec, divided co-ownerships are governed by the Civil Code of Quebec. The declaration of co-ownership must therefore comply with its requirements.

Undivided co-ownership: Undivided co-ownership agreement

The document that governs an undivided co-ownership is called an undivided co-ownership agreement. Although it is strongly recommended, an undivided co-ownership agreement is not mandatory. It can set out how the property will be managed and operate, as well as the percentage of the building owned by each co-owner.

Since decisions are made by all co-owners, an undivided co-ownership can be attractive if you want to play a more active role in managing the property. However, since it is less well-defined than a declaration of co-ownership, the agreement is more dependent on goodwill among co-owners. In summary, the co-ownership is simpler to manage.

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3. Renting out a condo

In most cases, you are allowed to rent out a divided condo. This can come in handy if you're planning to be away for an extended period—for example, if you're travelling or working outside the country. Renting out your property is also an attractive option if you're planning to invest in real estate.

However, the situation is different for an undivided condo. This type of property can never be rented out. This is because, even if you and the other co-owners agree to allow rental, the rules of the mortgage loan generally forbid renting out your unit while you are away.

4. Expenses and taxes

Divided co-ownership: You'll pay for more services

To cover building expenses, divided co-ownerships charge condo fees. These fees vary depending on the size of the building and its common areas and what services are offered.

Here are some examples of expenses included in your condo fees:

  • Expenses related to maintaining and managing common areas (pool, elevator, landscaping, gym, etc.)
  • Home and civil liability insurance for the building
  • Civil liability insurance for the syndicate of co-owners and building administrators
  • Reserve fund to cover repairs
  • Self-insurance fund to cover deductibles payable by the syndicate of co-owners after an incident

Since divided co-ownerships are governed by specific legislation concerning insurance and funds, expenses will generally be higher than for an undivided co-ownership.

Taxes: Since each unit has its own cadastre number, they also each have their own municipal and school tax bills.

Undivided co-ownership: You'll share the expenses

For an undivided co-ownership, there is no specific legislation specifying what shared fees must cover. All co-owners are jointly and solidarily liable for the entire building. They will have to agree on the amount payable each year to ensure the property is maintained and build a reserve fund.

Pro tip

Before you buy a condo, be sure to check how much is in the reserve fund. This could save you from having to pay a lot of money if major repairs are needed.

Taxes: Since the building (regardless of the number of units) has a single cadastre number, the municipal and school taxes are divided proportionally among co-owners. In some cases, taxes can end up being cheaper than for a divided co-ownership (where each co-owner pays their own taxes). However, if a co-owner fails to pay their taxes, the others will have to cover for them.

Now that you know the differences between a divided co-ownership and an undivided co-ownership, you're better equipped to choose your new property.

But buying a condo goes beyond knowing the differences between divided and undivided co-ownership:

→ Learn more by reading our guide to co-ownership.

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