Co-Buying a Home with Family or Friends in BC

Buying with a sibling, a parent or a friend can put a home within reach sooner, but it ties your money and your plans together for years. Here is how to set it up in BC: how to hold title, what a co-ownership agreement should cover, how the mortgage and first-time buyer programs work when you buy together, and what happens if someone wants out.

The short version

How you will hold title

When two or more people buy together in BC, the transfer records whether you are joint tenants or tenants in common. I explain both in Joint Tenancy or Tenants in Common? In short:

• Joint tenants own the whole home together. When one dies, their interest generally passes to the surviving owners, outside the will.
• Tenants in common each own a share, which can be unequal, and each share passes through its owner's estate. If the transfer doesn't say which you are, BC's Property Law Act makes you tenants in common, and your shares are presumed to be equal unless the transfer states them.

If you are putting in different amounts, tenancy in common lets the shares on title match your contributions. Tell your lawyer or notary early how you want to hold title, because they prepare the transfer.

Put it in a co-ownership agreement

A co-ownership agreement is a contract between the owners that sets out your rights and obligations and how you will settle disagreements. BCREA's Legally Speaking recommends negotiating one before you buy, or shortly after, while everyone still agrees. It should cover:

• Shares and contributions. How title will be registered, each person's percentage, and what each of you put in at the start.
• Payments. How the mortgage and running costs, such as property tax, insurance, strata fees and repairs, are split, and what happens if someone doesn't pay their part.
• Use and decisions. Who lives in the home, whether any part of it can be rented out, and how you will decide on renovations, refinancing or a sale.
• Exits and buyouts. Whether owners can buy each other out, how that works, and when and how the home can be listed and sold.
• Life events. What happens if an owner dies, loses capacity, divorces or goes bankrupt.
• Disputes. How disagreements will be resolved, for example through mediation or arbitration.

Agree in advance how a share will be valued, for example by an independent appraisal, so a buyout doesn't start with an argument over price. Each owner should get their own legal advice before signing. The agreement binds the owners, not your lender.

Getting a mortgage together

Sagen, one of Canada's mortgage insurers, requires everyone on title to be on the mortgage and liable for the entire amount, however you hold title. In practice:

• You qualify together. The lender looks at your combined incomes and all of your debts, and checks that you can carry the payments at the stress-test rate. I explain the ratios in How Much House Can You Afford?
• Everyone's credit is checked. For a CMHC-insured mortgage, at least one borrower or guarantor needs a credit score of 600 or more.
• One debt, shared in full. Each of you is responsible for the whole mortgage, not just your share. If one owner stops paying, the lender can look to the others for the full payment, whatever your agreement says.
• Owners who won't live there. With less than 20% down, you will typically need mortgage default insurance, and insurers have rules for borrowers who won't live in the home. Sagen accepts them only if they are close family, such as a parent, child, brother, sister or grandparent.

When one of you isn't a first-time buyer

First-time buyer programs look at each owner separately, and each has its own test. I cover them in First-Time Home Buyer Programs in BC. When you buy with someone who doesn't qualify:

• Property transfer tax. BC's first-time buyers' exemption applies only to the share owned by qualifying buyers who move in. On an $800,000 home, a qualifying buyer on their own pays $6,000 instead of $14,000. If they own 60% and a co-owner with 40% doesn't qualify, the exemption falls from $8,000 to $4,800, and the tax is $9,200.
• Newly built homes. BC's separate newly built home exemption doesn't depend on being a first-time buyer. It has its own value limit and move-in rules.
• FHSA and the Home Buyers' Plan. If you buy together, each of you who meets the first-time buyer test and will live in the home within a year can make a qualifying withdrawal from your own First Home Savings Account, and withdraw up to $60,000 from your own RRSPs under the Home Buyers' Plan. An owner who doesn't meet both conditions generally can't use either.
• The federal home buyers' amount. Co-owners who qualify can split the claim, but the total for the home can't be more than the $10,000 maximum. An owner who doesn't qualify can't claim it.
• A 30-year amortization. For a CMHC-insured mortgage, at least one borrower must be a first-time homebuyer, or the home must be newly built.

If someone wants out

Plans change: a new job, a new partner, a falling-out. Your agreement should set out the process. Without one, BC's Partition of Property Act applies, and the dispute goes to the BC Supreme Court:

• Any owner can apply. Joint tenants and tenants in common can be compelled to divide or sell the property.
• Owners of half or more. If owners holding at least half of the interests ask for a sale, the court must order one, unless it sees good reason not to.
• Smaller owners. Any owner can ask for a sale, and the court may order one, but not if the other owners undertake to buy that owner's share. The court can then order the share valued.

In Machin v. Rathbone (2006), two couples each owned half of a cottage, and the court ordered it listed for sale, with either couple free to make an offer. In Vetter v. Bolivar (2010), the court held that the Act didn't apply because the owners had a valid co-ownership agreement, so their dispute could go to arbitration as the agreement provided.

A buyout also needs your lender. On a mortgage insured by Canada Guaranty, for example, a lender can release a departing borrower if, among other conditions, the remaining borrowers are of at least comparable quality and meet its guidelines, and a buyout between owners on title can be financed up to 95% of the value. The departing owner's share is then transferred at the land title office, with property transfer tax unless an exemption applies.

Insurance, wills and the unexpected

• Home insurance. Most lenders require it and want to be named on the policy. A standard policy covers the policyholder, their spouse or partner and their children, so if you are friends or relatives, ask your insurer how every owner will be covered.
• Life insurance. If an owner dies, the others still owe the whole mortgage. Mortgage life insurance pays the balance to the lender, and the benefit shrinks as the balance does. Individual life insurance pays the beneficiary you name, and the benefit stays the same, which can give the others the money to keep up the payments or buy out the estate's share.
• Wills. A tenant in common's share goes through their estate. Without a will, BC's Wills, Estates and Succession Act passes it to a spouse and relatives in a set order, never to a friend.
• Powers of attorney. If an owner can no longer manage their affairs, someone needs legal authority to sign for them, for example to renew the mortgage or sell. A lawyer or notary can prepare a will and a power of attorney.
• Speculation and vacancy tax. In the areas where it applies, each person on title makes their own declaration every year by March 31, even when the other owner is a relative.

Questions buyers often ask me

Can friends buy a house together in BC?

Yes. You can hold title as tenants in common or joint tenants, and the lender will look at all of you, with each owner on the mortgage and responsible for the whole debt. A co-ownership agreement sets out the rest.

Do we both have to be first-time buyers for the property transfer tax exemption?

No, but only the share owned by buyers who qualify and move in is eligible. If you own 60% and qualify, and your co-owner doesn't, you get 60% of the exemption.

Can my co-owner force a sale?

Under the Partition of Property Act, any co-owner can ask the BC Supreme Court to order a sale. If owners of half or more ask, the court must order one unless it sees good reason not to. A smaller owner's request can be answered by the others buying that share.

What should a co-ownership agreement include?

Shares and contributions, who pays the mortgage and costs, how decisions are made, buyouts and sale, what happens on death, incapacity, divorce or bankruptcy, and how disputes will be resolved.

What happens to my share if I die?

As a joint tenant, your interest generally passes to the other owners. As a tenant in common, your share goes through your estate under your will, or under BC's rules for people who die without one.

Planning a shared purchase? Read Joint Tenancy or Tenants in Common?, work out how much house you can afford together, and see First-Time Home Buyer Programs in BC.

This article is general information, not legal or tax advice. The rules described come from BC law, the Province, the Canada Revenue Agency and mortgage insurers, and were current at the time of writing; have a lawyer draft your co-ownership agreement. For BCREA's overview, see co-ownership agreements.