Potential Pitfalls

Collective ownership can work very well if your co-owners share similar values and goals. However, co-ownership can be fraught with problems if the group enters into the transaction without having thought through and agreed upon what steps to take in difficult situations. Write a very clear agreement outlining your individual and collective rights and obligations as co-owners. These agreements, taken together, are considered the bylaws and CC&R (covenants, conditions and restrictions) of the community, and will govern how you interact and solve problems and disagreements when they arise.

• If one owner (let’s call him Joe Somebody) wants to sell his interest, what are his obligations in finding a buyer?
•  What if Joe finds a buyer, but the buyer is unacceptable to the other owners? For example, you want your space to remain a quiet haven for writers and Joe wants to sell his studio space to a pianist. 
  
• What “first rights of refusal” do the other owners have to purchase Joe's space, and at what price?
• What rights and responsibilities do the other owners have if they do not want to buy him out, and no other purchaser can be found? 
• Who is responsible for paying common bills? 
  
• What happens if Joe gets behind in his payments? Who has to pay his portion and what are the penalties? (This might not apply, depending on the type of ownership model the space is under.)
• What happens when Joe dies? Who pays his portion (if applicable)? What happens to his share of the property; Does ownership transfer to the remaining co-owners, or to Joe’s heirs?
• What if Joe wants to rent out his space? What do the other owners do if the tenant is noisy or does not pay the rent?
• What happens if you agree collectively to sell, but the value of the property has fallen below what you have all put into it? Does each person owe for the balance of the loss in equal proportion to his/her ownership?
• What happens if Joe is unemployed and repairs need to be made? How will his portion of the payment be paid? If the other group members pay his portion, how will they guarantee he will reimburse everyone for the payment?

These potentially controversial issues do not need to destroy a co-ownership as long as they have been discussed and formally addressed (via an agreement) upon prior to the purchase. It is very important to seek legal advice when creating the wording and content of such an agreement, and to correctly file all appropriate paper work.

Co-owners might consider obtaining individual legal counsel, to protect each individual's interest. Another possible solution: Have one member's lawyer draft an agreement. The other members could then ask their own counsel to review and edit the draft. This will ensure that the final document reflects the interests and needs of each co-owner, and the group as a whole.