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Questionnaire for Co-Owners of a Home or Duplex

Submitted by on October 13, 2012 – 8:28 pmNo Comments

Use of this Questionnaire:  This Questionnaire is a tool to help co-owners talk through the details of their shared property ownership.  The answers to these questions could help lay the groundwork for a more detailed Tenancy in Common or LLC Operating Agreement.  Note that this Questionnaire assumes that the property in question contains multiple units, but many of the questions would also pertain to the co-ownership of a single unit property.   Please do not rely on this as a thorough list of questions you should ask in connection with co-ownership, since there may be many other details to resolve or legal matters to sort through.  We recommend that co-owners seek the advice of an attorney regarding the details of their co-ownership agreement.

Buying the Property

  1. Contribution to Purchase Price and Costs:  Will each owner’s contribution to the purchase price be based on financial ability, the value of the share of space they will receive, or some balancing of the two considerations?  Are the units and/or private spaces substantially the same or do they differ in value?  If the units and private spaces differ in value, how will you determine the share of the total cost to be paid by the occupants of each unit?  For example, would it make more sense to allocate the cost by square footage or to have each unit and its exclusive use common areas appraised?   If the units are substantially similar, will you be able to come to an agreement after taking into consideration any unique attributes such as parking, decks, views, etc?
  2. Contribution Toward Down Payment, Monthly Payments, and Overall Debt: What will be the percent of total paid by each co-owner for:
  1. Down payment
  2. Monthly payments
  3. Overall share  of debt
  1. Contribution of Labor or Property: Will anyone be contributing goods or services in lieu of money payments for the purchase price or other costs?  If so, what will those contributions be and how will you value them?  What is the timeframe for completing this work?  How will you manage the income tax consequences of “sweat equity?”
  2. Group Ownership of Units: Will more than one person share the cost of one unit; that is, can a group of people buy into the property collectively as one co-owner to share one living space or unit?

Who Lives at the Property?

  1. Number of Residents: Do you want to limit the number of people who may live in each unit or living area?
  2. Housemates: If a co-owner wants to have a housemate or roommates, should they get approval from the other co-owners?
  3. Renting Units: If a co-owner moves out and wants to rent out his or her unit or living space, should they have to get the other co-owner’s approval of the prospective tenant?  Typically, it’s reasonable for the co-owner of the other unit to have the right to review a prospective renter’s financial status and references and reject a renter on reasonable grounds.
  4. Rules for Tenants: Do you want potential tenants to sign a written agreement that includes all of the rules and use restrictions in the co-owners agreement?
  5. Eviction of Tenants: Do you want to restrict how a co-owner may evict a tenant in order to protect other co-owners from legal retaliation?
  6. Pets: Do you want a pet policy in your TIC agreement?  You might want to consider how many pets per unit or living area might be allowed, what kinds of pets might be allowed and specifically excluded, where pets are to be kept, what kind of pet behavior is unacceptable, and whether a co-owner has to get approval of other co-owners to have a new pet.

Designation of Units, Exclusive Areas, and Common Areas

  1. Assignment of Units and Living Areas:  Which unit or living area will each co-owner get to occupy?
  2. Common Areas: What common areas of the property will be shared by all owners?
  3. Exclusive Use Common Areas: What common areas of the property (outside of the units or living areas) will be reserved for the exclusive use of each owner, such as parking spaces, garages, yard and garden spaces, storage spaces, decks? These areas are often referred to as “exclusive use common areas.”

What May or May Not Be Done To or On the Property? 

  1. Alterations to Units:  What kinds of alterations may a co-owner make to her or his unit or living area and which, if any, alterations would require the other co-owner’s approval?
  2. Home Business Use: May the property be used for a home business?  If so, what kind of business?  You may want to distinguish between businesses that involve visiting clients or customers versus a home office or studio with no visitors.
  3. Use of Chemicals: Do you want to limit the kinds of paints, pesticides, herbicides, cleaning chemicals, etc. that may be used on the property?
  4. Hazardous Activities: Do you want to limit or prohibit any hazardous activities – particularly things that could affect your ability to get proper insurance for the property.
  5. Risks to Third Parties: Do you want to limit or prohibit any activities that create a risk to third parties and subject co-owners to liability such as, for example, teaching gymnastics on the property or building a tree house, etc.
  6. Storage: Do you want to limit what may or may not be stored on the property such as, for example, accumulated trash or clutter, discarded furniture or other personal items, seldom used or unused vehicles, etc?  Do you want to limit storage of anything to certain areas of the property?

Property Related Costs and Accounting

  1. Budgeting: Will you hold an annual meeting to adopt an annual budget?
  2. Bank Account: Will you open a joint bank account to manage collection of money and payment of bills?
  3. Utilities: Are any utilities separately metered?  If so, which ones?  How will owners be reimbursed for the use of their separate utilities, such as water or lighting, in common areas.  If any utility is not separately metered, on what basis will you share the cost?  An equal share per unit or living space?  The number of people living in each unit or living space as a percentage of total residents?
  4. Other Costs: What other regular costs do you expect and on what basis will you allocate each co-owners share of them?
  5. Process for Collecting and Making Payments: How will you collect money to pay for all shared monthly costs?  Will each co-owner pay a fixed monthly amount into a joint or association bank account?   In this case, an annual reckoning of the account would reimburse or charge co-owners as needed.  Or will you get together every month to divide up expenses?
  6. Bookkeeper/Treasurer: Will one person be asked to manage accounting?  If so, how long will that person be expected to provide the service?  If not, will you hire an accountant or bookkeeper to manage accounting?
  7. Large Expenses: Are there foreseeable large expenses in the next 5-10 years such as, for example, roof replacement, painting, plumbing or sewer repairs or replacements, foundation work, renovation, etc?
  8. Reserve Account: Will you build a reserve account for foreseeable repairs and unanticipated expenses?  If so, how much?  How will you build the fund?  Will each owner contribute a set monthly amount to the account until the goal is reached?
  9. Repairs: If a repair is needed, how much may a co-owner spend before they need to get the other co-owners’ approval?
  10. Insurance: What minimum level of property and liability insurance will you maintain?
  11. Indemnification: Do you want to agree to compensate and defend each other in situations in which one co-owner may cause liability that would extend to other co-owners?
  12. Record-Keeping: What records will you keep about the property and where will they be kept?  What method will you use to account for co-owner contributions, expenses and payments made?

Taking Care of and Developing the Property

  1. Maintenance Standards for Structures: Do you want to have standards for the upkeep and maintenance of all structures on the property?  If so, what are those standards?  These standards are important to make sure the property is saleable, easier to insure, and more likely to get favorable financing.
  2. Maintenance Standards for Yards: Do you want to have standards for the upkeep and maintenance of the yard and other common areas? If so, what are those standards?
  3. Architectural Style: Are there particular design or architectural features you would like to preserve, styles you want to follow, or materials you want to use or not use on the property?
  4. Maintenance Responsibilities: What parts of the property will each owner be responsible for maintaining?
  5. Shared Maintenance: For what areas will you share maintenance responsibilities?  Typically, where a tenancy in common is all in one building, the owners will be jointly responsible for maintaining the entire structure of the building.  Where the units are in separate buildings, each owner may take full responsibility for maintenance of his or her whole building or may be responsible only for the interior of the building.  In this case co-owners share responsibility for maintenance of the exterior of buildings as part of the common area.
  6. Alterations: Should you need to get each other’s consent to alter the interior of units or living spaces if it does not affect the structure of the building?
  7. Maintenance Costs: Do you want to have a monthly contribution from each co-owner to pay for upkeep and maintenance of common areas that will be maintained by all owners?  If so, how do you want to allocate the costs?
  8. Property Tax Increases:  If property taxes are increased due to improvements made by a co-owner to his or her unit or living space, will that person be responsible for paying the added amount?
  9. Partial Destruction: If the property is partially destroyed, under what circumstances do you want to rebuild – is there a maximum out of pocket amount above which you would not rebuild?  If you take an insurance pay out, how will you divide the proceeds?
  10. Maintenance Manager: Will one person be responsible for managing the maintenance and repair of the property?  If so, will they be asked to serve as manager for a certain amount of time?  If no co-owner will manage the maintenance and repair, will you hire someone to do that job?
  11. Improvements: If a co-owner makes a significant improvement on the property that raises the value of the common area (such as installing a hot-tub), how will co-owners compensate the owner that made the improvement?  Will the improvement be appraised at the time the property is sold?  Will the owner have a right to reimbursement from the sale proceeds?  How will depreciation be taken into account?

Refinancing the Property

  1. Refinancing: Under what circumstances may the co-owners refinance the property?
  2. Refinance Costs: Who will pay the refinancing costs?
  3. Borrowing Against the Property: Under what circumstance, if any, may a co-owner take an equity line of credit or a second mortgage?

If One Co-Owner has Financial Troubles

  1. Financial Troubles:  What should happen if one co-owner runs into financial troubles and cannot make required payments?
  2. Default Fund: Do you want to set up a default fund to pay the costs due by a co-owner who runs into financial trouble?  This would serve to protect the assets, equity, and credit ratings of the other co-owners.
  3. Advancing Payments: In lieu of a default fund, do you want to agree ahead of time to the terms under which co-owners would advance payment on behalf of another co-owner? 
  4. Remedies for Default: How far behind on payments must a co-owner get before the other owner can demand that the property be sold, or demand to buy out or find a third party purchaser for the defaulting owner’s share?

Selling the Whole Property All At Once

  1. Timeline for Selling the Property: Do you want to agree now to set a goal of selling the whole property in the future?  If so, do you want to target a time to sell?  Will the decision to sell be based on, for example, a number of years, the occurrence of a certain event, or conditions of the housing market?
  2. Division of Sale Proceeds: How will you divide the proceeds if all co-owners decide to sell at once?  For example:
  1. Will you split it on the basis of how much you each paid toward the purchase minus each owner’s share of the outstanding debt on the property and other money owed?
  2. Will you base the split on the relative value of each owner’s interest in the property?  To do this, you would appraise each owner’s interest (meaning their unit combined with their exclusive use common areas, their share of the common areas, and other rights with regard to the property), then add the appraisals of all owners’ interests together, then divide sale proceeds based on each owner’s percentage of the total.  This method allows a co-owner to benefit from the increased value of improvements to his or her unit and provides an incentive to make improvements.

Selling Individual Interests in the Property

  1. Terms for Sale of One Owner’s Share: Do you want to provide the terms under which a co-owner may sell his or her interest in the property?  For example:
  1. Do you want to make a sale to a third party (not a co-owner) contingent upon approval of the sale by your existing mortgage lender?  If the sale is not approved by the lender, you may run the risk of the mortgage lender declaring the entire outstanding balance of the existing mortgage immediately due and payable – with potentially serious consequences to other co-owners.
  2. Do you want to agree that each co-owner will notify other owners when he or she intends to sell and that other owners will have the first option of buying that seller’s interest?
  3. Do you want to agree ahead of time how you will determine the selling price for sale of a share to other co-owners?
  4. Do you want to make the sale contingent on the prospective buyer signing your tenancy in common agreement so the agreement will bind all future co-owners?
  1. Approval of Prospective Buyers: Should the non-selling co-owners be able to approve or reject a prospective buyer?  If so, should the approval or rejection be on the basis of the financial status of the prospective buyer?  Should approval or rejection be on the basis of personal reasons?  While it is not clear whether personal reasons could be a legally enforceable basis on which to reject a prospective buyer, it’s a good idea to talk about and consider in advance on what basis you might not want to share ownership and residency of a house with someone.

Making Decisions About the Property

  1. Meetings: How often will you have regular meetings?  What procedures do you want to adopt for meeting agendas, notice and scheduling, etc?
  2. Decision-Making Process: Will you use majority voting, supermajority voting, or a consensus process to make decisions about the property?  What process with you use to consider and decide on proposals?
  3. Share of Votes: If each unit or living space will get one vote, are there any topics on which one co-owner will have a greater decision-making power or power to veto?
  4. Delegating Decisions: What kinds of decisions may co-owners make on their own and what kinds of decisions must be made by all co-owners?
  5. Conflict Resolution: Will you rely on mediation to solve disputes or another process? How will you choose a mediator?  Who pays?  How many mediations sessions must you attend before you turn to arbitration or litigation?

This questionnaire was created by the Law Office of Janelle Orsi, with the help of California cohousing attorney Cynthia Hawley.

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