Clients frequently find me when they want to buy a real estate that happens to be undivided common property. I always have two questions at such cases:
1st: Is there a co-ownership agreement?
2nd: Is there a disclaimer from the party with the right of first refusal?
Unfortunately the answer to both of these questions is usually “No”.
I always express my objections against buying a real estate without having the co-ownership agreement and the disclaimer on right of first refusal at hand, even if the former is not a legal prerequisite to acquire the estate. The reason is simple enough, till the use of the property is not settled, any co-owner can use any part of that property.
I know from experience that even the current owners of the real estate are rarely aware of the parameters of their own property, not to mention their rights and obligations related to their ownership. On the other hand, prospective buyers are insecure about having to submit immense documentation.
Therefore, before buying your dream home, there are two important facts to emphasize about undivided common property:
FIRST important fact about undivided common property:
In case there is no co-ownership agreement available, then you must make one before signing the contract of sale of the real estate. Such document shall include a statement between the parties regarding the use of the property, which shall clearly indicate which given parts of the property are used separately and which are of exclusive use. For instance, such agreement could state that one owner uses only the upper level of the property and lower level is used only by the other owner. It is strongly advisable to make this agreement in the form of a drawing (sketch only) in a way that the exclusive and shared parts of the property are marked with different colors.
This statement does not affect ownership, it only settles the use of the property.
It is important to note that banks also request this co-ownership agreement (the drawing) in order to disburse their loan.
SECOND important fact about undivided common property:
Co-owners of the property have the right of first refusal for the part of property to be sold by the other owner. This means that the property cannot be sold to a third party without having the official disclaims from all other co-owners, therefore it is imperative to obtain the signed disclaims of right of first refusal from all co-owners before signing the contract of sale. If these disclaims are not available (or have not been duly signed), then the Office of Land Registry will not record and register the change in the ownership.
Consequently it is very important to the prospective buyers to be aware of the legal status of the property to be purchased as well as the rights and obligations that accompany an undivided common property.