I wrote last summer about the use of cottage trusts as a planning tool. As cottage season is upon us again, I thought I’d write about another useful tool in the planner’s toolkit, particularly where several members of a generation are likely to share ownership of a cottage property: the co-ownership agreement.
While it’s important to consider the mechanics of transferring a family property to the next generation, it’s equally important to think about how the property will be managed once it has made its way into the next generation’s hands. In many families, the decision to leave a cottage to multiple children is motivated by a desire to preserve a property that has sentimental value and longstanding family ties. These considerations arise where ownership is transferred during a parent’s lifetime or on death. Regardless of when the transfer occurs, shared ownership can create opportunities for disagreement, particularly as children marry and have families of their own, relocate, or develop different financial circumstances and priorities.
A cottage co-ownership agreement can address many facets of shared ownership, including usage entitlements (who gets which long weekend? Can a party’s adult children attend at the cottage without them being present? What time should one party vacate before another party’s reserved weekend begins?); maintenance obligations (for seasonal properties, who is responsible for opening and closing the cottage? Is there a cleanliness standard that is expected to be maintained? How will routine operating expenses and ordinary repairs be funded? What happens if a significant capital improvement is required?); and sale and succession considerations (what happens if one party wishes to sell? If the remaining owners have a right of first refusal, how will the property be valued? Can an owner leave their interest to a spouse on death, or only to their descendants?).
Consider a common scenario in which a cottage is inherited equally by three siblings. One lives nearby and uses the property regularly, one lives across the country and only attends a few weeks each summer, and the third has children who are beginning to use the cottage independently. Several years into the arrangement, the roof needs to be replaced. Questions quickly arise. Must all owners contribute equally to the new roof, even those who don’t use the cottage often? What if one owner cannot afford the expense or does not agree that the new roof is needed? Does every decision require unanimity, or can major decisions be approved two of the three siblings? Without an agreed process for addressing these issues before they are an urgent concern, disagreements can become personal and place strain on both the ownership arrangement and family relationships.
A co-ownership agreement can provide a framework for decision-making. Not every issue can be anticipated in advance, and disagreements may inevitably arise over time. Establishing voting thresholds, dispute resolution mechanisms, and procedures for addressing deadlocks can help prevent relatively minor disagreements from escalating into large family conflicts. This can be particularly important where ownership is expected to pass through multiple generations and the number of owners may increase over time.
The agreement may also address circumstances that are difficult to discuss but important to plan for. An owner may experience financial difficulties, become incapacitated, go through a separation, or simply lose interest in maintaining an ownership stake in the property. Considering these possibilities in advance, and the options for dealing with them if they do occur, can help avoid situations where the remaining owners are forced to react to a crisis without an agreed-upon process in place.
Where a parent intends to leave a cottage property to more than one child, it is worthwhile to begin the conversation while the parent is still alive to ensure that family goals and objectives are properly reflected in the agreement. Involving the future owners in the discussion can help identify potential concerns early and foster a sense of shared responsibility for the property. Ideally, a co-ownership agreement is a mutually crafted document that provides clarity around expectations, reduces the likelihood of future disputes, and helps preserve both family relationships and a treasured family property for years to come.
