Divided vs. undivided co-ownership: all the differences

When you’re shopping for a condo, one of the first things you should check is whether the property is a divided or undivided co-ownership. While divided co-ownership is most common on the market, you should be aware that the undivided type can occur in the event of an inheritance or when the owners of a multiplex decide to convert it into a co-owned building. Depending on the type you choose, the financial, legal and lifestyle implications will be different.

Our complete guide will tell you all there is to know about co-ownership before you buy!

Contents:

• Divided co-ownership
• Undivided co-ownership
• The advantages and disadvantages of each and their differences
• Buying a divided or undivided co-ownership

Definition of co-ownership

Co-ownership, or joint ownership, means that the deed to a property or thing belongs to several people at the same time. Co-ownership can be divided or undivided.

The Civil Code of Quebec defines it as follows: “Co-ownership is ownership of the same property, jointly and concurrently, by several persons each of whom is privately vested with a share of the right of ownership.”

Divided co-ownership

For a building to be considered a divided co-ownership, it must be apportioned to the co-owners in at least two shares. Each share may belong to one or more owners. The building contains private portions and common areas.

According to the Quebec Professional Assocation of Real Estate Brokers (QPAREB), co-owned properties account for about 12% of all dwellings in Quebec. The best-known example of divided co-ownership is surely condo buildings.

The private portion

Each co-owner owns a portion of the building, over which they have exclusive rights, namely, the condo itself. This is the private portion. Depending on the declaration of co-ownership, other sections of the building, for instance parking spaces, may also be private portions belonging to one or more co-owners.

The extent of the private portion owned by one person will influence their voting rights within the co-owned building and their share of the common areas.

Common areas

The owners of a divided co-ownership building also own a portion of the common areas, in relative proportion to the fraction (condo and other private spaces) they own. This fraction, which is expressed as a percentage, is indicated in the declaration of co-ownership and is used to calculate shared costs, which are commonly known as “condo fees.”

Common areas can include:

• Foyer
• Lot
• Exterior walls
• Roof
• Rooftop patio
• Elevator

Each declaration of co-ownership includes provisions that either include or exclude these components. It also contains a definition of the building’s common and private portions.

Some common areas are restricted in use, meaning that, even though they belong to all the co-owners, only one or several owners have the right to use them. They are however subject to co-ownership and common area rules. The user(s) must maintain those areas and make regular maintenance repairs, but the fees for major repairs or replacements are paid by the group of co-owners as a whole, as described in the declaration of co-ownership.

Here are the best examples of restricted-use common areas that are found in declarations of co-ownership:

• Balcony of a given unit
• Parking space
• Indoor storage space

In short, in a divided co-ownership, the condo owners have rights to their respective unit (and other private portions, where applicable) and they exercise their right in common over the shared areas.

The declaration of co-ownership

This is a notarized document that sets out all the rules of collective life that govern the divided co-ownership. It binds the parties together and establishes a board of directors to manage administrative tasks. Signed by the building’s owners and by mortgage creditors, then published in the land register, the declaration of co-ownership includes information on the following:

• Building ethics (e.g. are pets allowed?) 
• Building aesthetics (e.g. are barbecues allowed on balconies?)
• Condo fees (e.g. who are they paid to?)

The agreement includes three sections:

Incorporating documents: These define the building’s destination, or use (residential; partly residential and partly commercial; other), what the private and common portions are, the number of voting rights attached to each portion, the terms of the co-ownership insurance, the powers and duties of the board and of the general meeting of the co-owners, etc.

Regulations: These are rules on life in the building and on how the co-property operates and is administered.

Descriptive summary: It contains the cadastral numbers of the private and common lots and other technical details.

In short, the declaration of co-ownership sets out the rights and responsibilities of the co-owners as a whole and of the management agent. The declaration must be followed by all the building’s occupants, whether they are renters or owners. Breaking these rules can have legal consequences.

Amending a declaration of co-ownership requires the consent of a majority of co-owners, generally through a vote, as mentioned in sections 1060 and 1096 through 1098 of the Civil Code.

Parties involved and management

In a divided co-ownership building, the general meeting of co-owners brings all the owners together, and the meeting’s powers and duties are set out in the declaration of co-ownership. The general meeting is one of two decision-making bodies that are part of what is called the management agent (known in French as the “syndicat”). The management agent is a moral person constituted when the declaration of co-ownership is published in the land register. The management agent oversees the maintenance, preservation, administration and performance of any work needed, on behalf of the co-ownership. Each co-owner can give their opinion on topics set out by law during the meetings (yearly general meetings or special meetings), thanks to their voting rights (the number of which is determined by the declaration of co-ownership). These topics can include amending, adding or removing regulations and authorizing work in common areas.

The second decision-making body within the management agent is the board of directors, which exercises group executive and decision-making power. The board is elected yearly by all the co-owners. It must prepare the budget allowing for sound management and it must determine the common fees, including the amounts to be paid into the contingency fund.

The board can also hire a co-ownership manager to lighten its workload. Generally speaking, this manager can take on the following tasks:

• Administrative (e.g. acting as an intermediary between the board members, service providers, staff and co-owners)
• Financial (e.g. preparing a planning budget for the coming fiscal year)
• Technical (e.g. negotiating contracts with service providers for the building)

Fees and taxes

In a divided co-ownership, the fees relating to the building are known as “condo fees.” The amount depends on the number of co-owners, the size of the building and its common areas, and its services. For instance, a high-rise with a gym and pool will generally have higher condo fees than one that doesn’t offer these services.

More than just covering maintenance and administration of common areas, the condo fees also cover:

• Insurance for the building (residential, civil liability for the board and the agent)
• The contingency fund
• A self-insurance fund (to pay deductibles in the event of a claim)

There are specific regulations overseeing insurance and funds in a divided co-ownership. Therefore the fees paid by the co-owners are compulsory and generally higher than those in an undivided co-ownership.

Plus, since each condo has its own cadastral number, co-owners are responsible for the municipal and school taxes for their unit.

Insurance

In a divided co-ownership, each owner must take out individual insurance for their unit, but the management agent is responsible for insuring the whole building.

Here are some of the things covered by each co-owner’s individual insurance:

• Civil liability in the event of accidental damage caused to others
• The furniture and goods in the unit
• Improvements made to the condo

The insurance taken out for the building covers:

• The units, before improvements (where applicable)
• The common areas of the building

Desjardins tip

Which insurance covers repairs in the building after damage?

Changes to the Civil Code of Québec (Bill 141)

Syndicate insurance must cover repairs in the building, including in each co-owner’s unit. However, it does not cover damage to improvements to the original unit.

This requirement was clarified by Bill 141, which amended certain provisions of the Civil Code of Québec in December 2018.

Who pays the amounts not reimbursed by the syndicate insurance?

Some amounts may not be reimbursed through the syndicate insurance:

• The syndicate’s deductible
• The cost of repairs that exceed the insurance coverage
• A claim not covered by the syndicate insurance

The syndicate can spread the costs among all the co-owners. If the damage is covered by your condo insurance, your insurer could pay up to the limit indicated in your policy, except for the syndicate’s deductible.

Also, be sure to inquire about your syndicate’s insurance coverage. For example, does it include flooding? You may want to add riders to your policy if something is not covered or is insufficiently covered.  

Discover Desjardins’ condo insurance and what it covers!

As of April 15, 2021, property insurance (section 1073 of the Civil Code of Quebec) covers the whole of the building, including the private and common areas, as well as those with restricted use. This excludes any improvements made by a co-owner to their own private portion if the improvements can be identified relative to the description of that private portion (section 1070, subsection 3, Civil Code of Quebec). The insurance policy must provide for a reasonable deductible and, unless otherwise specified, must cover the usual risks: theft, fire, lightning, storm, explosion, leak of sanitary facilities, vandalism, etc. The amount must cover the reconstruction of the building in accordance with the standards, customs and best practices applicable at the time of the occurrence of the claim, and this amount must be assessed at least every five years by a member of a professional order designated by government regulation.

Apart from property insurance, the management agent must take out insurance to cover its liability toward third parties, as well as the liability of the board members and of the manager, chairperson and secretary of the meeting of co-owners, and other administrative staff.

On April 15, 2022, section 1071.1 of the Civil Code came into force, requiring a self-insurance fund to be set up, to anticipate and finance the costs of a claim that would not be covered by the management agent’s insurance, including the deductibles. As per section 1071.1, the self-insurance fund is the property of the management agent.

Contingency fund

Since the Civil Code came into force in 1994, all co-property management agents in Quebec are required to have a contingency fund. This is a reserve of money to pay for renovations and major repairs. It is therefore separate from the funds earmarked for regular maintenance of the building’s common areas. The contingency fund is compulsory in a divided co-ownership and is recommended in an undivided co-ownership.

According to the law, the contingency fund must cover the “estimated cost of major repairs and the cost of replacement of common portions” (section 1070 of the Civil Code of Quebec). The Code also sets out that annual contributions to the fund may not be less than 5% of the common fees (section 2070, subsection 2).

Since each co-ownership property is unique and the 5% threshold was too low for many, there are some modifications relating to the contingency fund planned in Bill 16. These have not yet come into effect. The government will determine the form, content and procedures for conducting and reviewing the contingency fund study.

This study will be carried out by a professional determined by the government, every five years, and it will forecast the estimated costs considered sufficient to cover major repairs and replacement of the common portions. It will give a general account of the building and calculate the short-term risks. The management agent will then be obligated to adjust the condo fees in line with the results of the study and to supply the contingency fund accordingly.

Maintenance log

Bill 16 also addresses the requirement to keep a maintenance log for the building that must be reviewed every five years. These provisions regarding the log are not yet in force, but the log is mentioned in sections 1070.2 and 1106.1. Here’s what the law would call for if Bill 16 passes:

The log would be compulsory in all divided co-ownership buildings. It would be prepared by a building professional and would consist of a registry of past tasks and expenses and a maintenance plan for the building. In short, the log would be a guide of recurring, regular tasks aimed at ensuring consistency in the building’s management.

The document would be similar to a CV for the building. It would keep future board members up to date on the work done, the work remaining and their deadlines. It would generally include the following:

• Information on the building (plans, year built, etc.)
• Information on the management agent
• Information on the management company (where applicable)
• List and description of the building’s common areas
• Maintenance handbooks
• List of service contracts in force
• Warranties for equipment and systems
• Monthly maintenance log
• Five-year maintenance plan

Undivided co-ownership

An undivided co-ownership is where several people exercise their property rights on the same (multiplex-type) building, on one lot. According to section 1010 of the Civil Code of Quebec, this property right “is not accompanied by a physical division of the property.” Each co-owner owns a percentage of the property rights and has the right to occupy their domicile. Together, the co-owners of an undivided property are responsible for common fees, such as municipal and school taxes.

In other words, in this type of property, the co-owners have a common exercise right over the whole building but have usage rights over certain portions. None of the co-owners in this case own a private portion. Instead, they own an abstract portion—a percentage, or fraction—of the property rights to the whole building.

This type of co-ownership is less common than divided co-ownership.

The indivision agreement

Optional but recommended, the indivision agreement, signed by the co-owners, represents their specific law and notably includes the rights and obligations of the co-owners as regards:

• Enjoyment of the premises (e.g. each co-owner’s exclusive usage rights)
• Expenses (e.g. sharing of tax bills)
• Maintenance and improvement obligations
• All general rules relating to building administration

Without such an agreement, a co-owner can’t claim an exclusive right to occupy a portion of the building, and the general regulations set out in the Civil Code apply. This means that, even if one co-owner made a smaller down payment or contributed less to the mortgage payments, that co-owner would still be considered to own an equal share.

The indivision agreement also indicates how value will be divvied up in the event that the indivision ends. It dictates whether one co-owner is free to sell or assign their dwelling to someone else, or if it must be offered to the other co-owners first. This is known as a pre-emptive right, or right of first refusal, as described in section 1022 of the Civil Code of Quebec.

Section 1014 of the Civil Code states that, to be set up against third persons, “indivision by agreement with respect to an immovable shall be published” in the Quebec land register (French only).

Fees and taxes

In an undivided co-ownership, the sharing of costs is central to the relationship between the owners. There is a single tax account for the entire building, and all the co-owners are responsible for it. If one of them doesn’t pay their share, the others must cover it.

Unlike with divided co-ownership, there is no law in undivided co-ownerships that determines how common costs are managed. The co-owners must agree together on the amount to be paid every year to maintain the building and for a contingency fund. This agreement may be included in the indivision agreement.

Desjardins tip

Be prepared with a personal emergency fund. Whether to cover unpredictable condo expenses or other unforeseen events, having an emergency fund will give you peace of mind. Between paying down debt, covering day-to-day expenses and saving for projects, budgeting can be challenging and leave little room for unexpected expenses. You can’t predict the unexpected, but you can prepare for it. There’s nothing better than a small financial cushion to avoid having to resort to using credit.  

Read Desjardins’ helpful tips.

Parties involved and management

As previously shown, the Civil Code of Quebec contains guidelines to specifically regulate divided co-ownership. But in an undivided co-ownership, the co-owners can create their own rules through an indivision agreement. In fact, the Civil Code currently includes very little oversight about the rights and obligations of the owners in an undivided co-ownership.

In these types of arrangements, decisions are made by all the co-owners and the indivision agreement is used for oversight. Sections 1025 and 1026 of the Civil Code of Quebec state that the co-owners in an indivision administer the property jointly and that decisions are made by a majority (in number or shares) of the co-owners. However, a unanimous decision is needed for decisions relating to acts of alienation (selling, partitioning or mortgaging of a fraction of the undivided property, changing the destination of the building or a fraction, etc.).

Insurance

Residential insurance for an undivided co-ownership can come in two forms. If there are only two co-owners, they can take out homeowner insurance to cover the insureds’ property, including the building, any dependencies, as well as belongings and furniture. Where there are more than two co-owner/occupants, they must take out insurance that covers the building exclusively, and each co-owner occupying the building must take out tenant insurance for their goods and furniture.

There is no law requiring the co-owners in an undivided building to pay into a self-insurance fund to cover emergency or claims-related repairs.

The advantages and disadvantages of each and their differences

Divided and undivided co-ownerships each have their specific characteristics. It is up to the buyer to decide which one is more suitable for them, depending on what’s available on the market in their desired area. Divided co-ownership is characterized by the division of a building into several distinct units, each belonging to a different owner. Each owner has exclusive title to his or her unit, as well as a share in the common areas. On the other hand, undivided co-ownership implies that the building is owned by several co-owners, and each undivided co-owner holds a share of the right in the property; therefore, the right of ownership is not accompanied by a physical division of the property.

Let’s go over the advantages and disadvantages of each one, beginning with how expenses are allocated.

Divided co-ownership

Advantages:

Divided co-ownership generally gives co-owners more power. In concrete terms, the owner can make minor changes to their private portion without asking the other owners for authorization. Changes are allowed so long as they don’t impact the structure of the building or of any common areas, and that they comply with the contents of the co-ownership agreement.

As regards administration, divided co-ownership is often a good choice for buyers who don’t want to get very involved in managing the building. The board of directors includes only some of the co-owners, and the board sometimes uses the services of an external manager for interior and exterior maintenance.

Financially, divided co-ownership requires less cash at the time of purchase because the minimum down payment is only 5%. Therefore divided co-ownership is more financially accessible. However, when a buyer puts down less than 20%, they must take out mortgage loan insurance, which is additional to their monthly premium. Also, the buyer can choose which financial institution to get their mortgage from, so they are free to get the best conditions possible.

Desjardins tip

Budget and financial capacity: How much can I borrow?

Before calculating your borrowing capacity, make a detailed list of your income and expenses. You can use the Your Budget online tool to make sure you don’t forget anything.

Then, estimate the price you can pay for a property. We suggest following these two golden rules:

• Spend no more than 32% of your household’s pre-tax income on housing-related expenses
• Earmark a maximum of 40% of your household’s pre-tax income for paying off your debt

Disadvantages:

Life in a divided co-ownership is generally more regulated: the declaration of co-ownership contains all the rules for communal living and these are sometimes restrictive. For instance, co-owners may be required to put up white curtains or blinds in their windows, to give the building a uniform look. If one co-owner disagrees with the rules, there is often only one opportunity per year to make a case and try to amend them.

Also, the building-related costs are generally higher because the co-owners often pay for more services and because there are specific regulations about insurance, the contingency fund and the self-insurance fund.

Undivided co-ownership

Advantages:

In an undivided co-ownership, the way the fees and taxes are shared between the co-owners generally results in a lower bill for each person. An indivision agreement also allows for more freedom for the co-owners. And the management approach gives them a more active role and more regular involvement. The idea of living together is central to the relationship between co-owners.

Disadvantages:

Since all the co-owners are involved, management can get complicated if there is a disagreement. That’s the flip side of a less regulated type of co-ownership and of making decisions unanimously.

However, many people find the financial aspect to be the main disadvantage. In an undivided co-ownership, all the owners must take out their mortgage from the same financial institution. Each co-owner has their own mortgage on their share of the building. If there is an indivision agreement in place, the owners are protected if one co-owner fails to pay their own personal mortgage.

Furthermore, in an undivided co-ownership, the minimum down payment is 20% of the purchase price, for instance $60,000 on a property selling for $300,000. This can make an undivided co-ownership unit more difficult to resell, because there are fewer buyers who have the means. Buyers may also be wary because there are no laws overseeing the contingency fund in undivided co-ownerships.

Desjardins tip

Don’t forget the closing costs

Closing costs can include inspection and appraisal fees, real estate transfer tax (“Welcome” tax), fees and expenses for professional services, moving, etc. To cover these costs, set aside at least 3% of the value of your future home in addition to your down payment.

Fill out the closing cost calculation form (PDF)

Buying a divided or undivided co-ownership

So, you’ve done your homework and are ready to make an offer to purchase on a divided or undivided co-ownership? Before taking action—and to avoid nasty surprises—it is advisable to familiarize yourself with the declaration of co-ownership or indivision agreement. Don’t forget: every new homeowner is required to follow the rules!

It is in the interest of aspiring homeowners to check other things, including asking for copies of these documents:

• Certificate of localisation
• Proof of the management agent’s insurance (divided co-ownership)
• Study on the contingency fund (divided co-ownership)
• Minutes of co-owners’ meetings
• Financial statements and operations budgets

Generally speaking, a buyer should inquire about the building’s history, the existence of a self-insurance fund and maintenance log, current or planned renovation projects, potential lawsuits and any overdue fee payments by the seller.

Therefore before buying a unit in a co-owned building, it’s important to know all the building characteristics and the rules about living there. It can be helpful to ask a notary in private practice or a lawyer for help in analyzing these documents.

Desjardins tip

If this is your first real estate purchase, a condo is usually more affordable than a single-family home, especially in an urban setting. If you are already a homeowner, but are dreaming of a simpler way of life, the condo fees may cover snow removal and other maintenance tasks. This type of home meets many buyers’ needs, but requires certain specific checks.

Is renting an option?

If you're thinking of buying a condo to rent it out, it’s best to ask about the rules on that before making an offer!

In a divided co-ownership, the owners’ rights relating to renting their private portion are dictated by the building destination (use) and the declaration of co-ownership. So, a co-ownership building with an exclusively residential purpose is not compatible with short-term rentals (such as Airbnb). The declaration of co-ownership may also include restrictions on the right to rent and a penalty clause setting out fines in case of non-compliance. Despite that, in principle, the units in a divided co-ownership can be offered for long-term rental, for instance with one-year leases.

However, it is often impossible to rent an undivided unit. Generally it’s the mortgage terms that prohibit renting the dwelling because if the financial institution needed to repossess the co-property, it would not be able to evict the renter. For that reason, an undivided co-ownership is not a good purchase for people looking for a rental property.

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