Young professionals may be putting off marriage and children in favour of more dream driven lifestyles, but for many young people the financial value of real estate investment remains a central part of the plan.
The difference today from say twenty years ago, is that fewer young working professionals can afford to buy a home on their own. That’s why we are seeing a rise in the occurrence of multiple-buyer transactions, in which unmarried couples, friends, and family members decide to buy a condo in Toronto together.
But multi-buyer property deals tend to have a higher risk of future complications, as the individual owners move ahead in their own personal plans and lifestyles. We’ve heard many personal stories from friends and co-workers about the problems that can arise from multi-buyer transactions.
Typically, we hear of instances in which young couples who have been living together for a few years decide to buy a home together. In Canada, if you’ve been living together with a partner for more than 1 year, you will be considered common-law married. But since you’re not legally married, what happens if you break up?
Another option for young people is to partner with friends or family members to finance the purchase of property. In this instance, you might not even live in the home that you purchase, but instead use it as a co-owned investment rental property. But what happens when someone in these friend/family partnerships decides they want to sell their share of the property?
To find out more about these issues and help buyers navigate the legal side of things, we sat down for a Q&A with real estate lawyer David Meirovici of Brauti Thorning Zibarras.
Legal questions with David Meirovici
Q: What are some of the legal precautions to consider when entering a multi-buyer purchase with a significant other, friends, or family members. How do you protect your interests?
A: Anytime you have a Multi-buyer purchase, you have to be conscious of conflicts of interest. Ideally, with a couple (whether be spouses or common law), this concern is greatly reduced. The couple is often looking to buy the property as a new home to live in. As their interests are aligned, there is usually less room for conflict. But more on this below.
When purchasing as business partners or family members, however, there are extra considerations to take into account – both from a tax perspective, and as well differentiating sale rights. Anytime these transactions arise, it’s important to speak with your lawyer about your full intentions for the property. The lawyer will make sure that these intentions do not contradict each other and will explain the various possibilities that could arise. In the event that there are differing opinions, buyers will almost always be recommended to seek “independent legal advice”. This is to protect you as well as the other party, as it ensures that everyone has signed off to the others use of the property before the purchase occurs. The last thing you want is your partner arguing at a later date that they did not understand their limitations.
Q: In the instance of buying a home with a friend or family member, how do you prepare yourself for the potential departure of one side of the partnership? Your sibling or your friend wants to move out, get married, buy a new home with someone else. Or you want to sell your part of the ownership? Are there any legal precautions to prepare for this?
A: In the event of buying a home with a friend or sibling, it is almost always recommended that the purchase be made as Tenant-in-Common. Ownership as Tenants-in-Common allows each buyer to indicate (from the start) their percentage ownership in the property. Each buyer is then permitted to do whatever they like with their own portion of the property (whether be sell or re-mortgage). Following this strategy from the beginning avoids the fear of a partner leaving, as it has already been built into the ownership structure. You will not be surprised with the result and your interest in the property will not be affected. If parties enter into agreements as Joint Tenants, then the issue becomes more complicated as both parties need to reach an agreement first.
Q: In the instance of buying property with someone you’re dating, how do you protect your own finances in the event of a breakup? Who should put their name on the mortgage/who provides the down payment?
A: Unfortunately, there are no real tricks to protecting yourself from a future spouse. While many couples choose to put property in one person’s name as opposed to the other – should that couple eventually marry, the property will be considered the matrimonial home and will form part of the joint assets. Assuming the couple never actually gets married, the best you can do is to make sure that your contributions to the property are well documented, with the ultimate protection being a “cohabitation agreement”. If the property is jointly owned (as Joint Tenants), the default position will always be for a joint split regardless of one party putting more money in than the other. This is why signed agreements are so important. Keep in mind, whoever’s name is on the mortgage will likely need to be on title.
Q: How is it different if you are legally common-law with your partner and you decide to buy property together?
A: For the purpose of dividing assets after a breakup, there is no automatic or legal common law relationship in Ontario. The only relationship where a split is automatic (regardless of specific ownership) is marriage, and only for the Matrimonial Home. For long-standing couples, each case is looked at differently depending on the degree of partnership between the two. Once again, if both are on title, the default is a joint split. If only one is on title, the default is for funds to go just to that one person. This assumption can be rebutted based on specific circumstances but it is up to each party to “argue” their contribution as having created a constructive or resulting trust.
Q: If you purchased the property with help from your parents, such as a ‘gift’, is that worth noting legally?
A: Purchasing property with money from a parent is extremely common. In these situations, the moment the money is provided as a “gift” (something the bank would surely request proof of), then the parents’ entitlement to this money back is nearly gone. Parents can try to protect their interest by issuing second mortgages on the property (in favour of themselves), but they must be careful that these don’t contradict with any gift letters that have been provided.
Q: Does a prenuptial agreement apply to common-law couples?
A: A prenuptial agreement, by definition, refers to an agreement prior to marriage. Common law couples (or longstanding couples) should protect their interests by a cohabitation agreement or any other form of contract between them.
David Meirovici is an associate who practices primarily in the areas of civil litigation and real estate. Along with successfully representing clients at the Ontario Superior Court of Justice, David has formed a growing residential and commercial real estate practice. In this role, David has helped countless individuals, from purchasing their first homes to securing office space.