I'm working with a new client ready to buy his first property. He said he was looking for a condo, but I've come to realize that buyers throw that term around without knowing what it means.
In Quebec, there are two kinds of shared ownership properties: undivided co-ownerships and divided co-ownerships. People tend to use the word condo to mean both but they are distinct and there are things a buyer should understand about each before purchasing.
When buying into an undivided co-ownership property, you are, in fact, buying a share in a property as a whole. In a triplex, that typically means that you are buying about 33 per cent of the roof, foundation, walls and yard. You are given exclusive use of a portion of the property but you are essentially a shareholder in the whole. The property has one tax account, divided among the owners according to their share of the property. One of the big advantages to this kind of ownership is that property and school taxes are substantially lower.
Undivided co-ownerships have their own particularities.
As a rule of thumb, asking prices for undivided properties are lower than those for divided properties of similar size and with similar features. That's because buyers are obliged to provide a larger down payment when buying into an undivided property, 20 per cent down, versus the usual minimum 5 per cent.
Only two lenders will mortgage them: The National Bank and the Caisse Populaire. You can't choose, the lender will already be in place when you make an offer to purchase.
The third thing about undivided properties is that you have no automatic right to occupy the premises. Whaaaa? It's true. If you lease your "apartment" in an undivided co-ownership building, Quebec law says that you cannot then reclaim it unless the tenant agrees to go. It is equally true that if a rental building is turned into a undivided co-ownership property, the tenants cannot be turfed out, regardless of how many months notice they are given, or how much money you offer them as an inducement to leave.
For this reason, many undivided properties have clauses in their co-ownership agreements that forbid owners from leasing their properties.
Life is much more straightforward with a divided co-ownership property. Properly, this is what people mean when they talk about condos. You own your unit, its walls, floors and ceilings. Your tax bill will be higher, because it will more closely reflect the market value of your individual unit. This kind of ownership is relatively new in Quebec. It only became possible to divide a property after the Quebec Civil Code was revised by the National Assembly in 1969.
Unlike an undivided, the down payment can be as low as 5 per cent and you can seek a mortgage with any lender you like.
Which is the better option? There is no easy answer. For some people, substantially lower tax bills trump all other considerations. For others, there is a clean, simple logic to owning a unit, versus a share in a property.
The main thing is to consider what you're buying into. Read the co-ownership agreement. It will be so very booooooooooooring, but you'd be a fool not. A good agent will read it too, and advise you on potential problems. Are dogs allowed or not? Are carpets mandatory, or can you have hardwood floors? Are window boxes okay? Who has use of the yard or the basement? How much is each owner required to contribute to the reserve fund. All will be spelled out in a well-written co-ownership agreement.
Also read the minutes to the last two or three annual meetings of the co-owners. These will give you an idea of the issues and possible conflicts in the building. Examine the financial statements so that you know what big bills may be coming due and how much money is in the reserve fund.