Co-owning property abroad with friends or relatives

Sharing the purchase of a holiday flat or an investment property with friends or relatives is attractive: the budget goes further and the running costs are split. It also puts several people into one legal object, and the register will show them as owners whether or not they still get on. Co-ownership between non-spouses fails less often over money than over unclear agreements. This article lists what to settle in writing before the first payment. It is general information and not a substitute for local legal advice.

What co-ownership means legally

Co-owners usually hold defined shares of the same property, for example 50/50 or 60/20/20. The details depend on the country, but a common pattern is:

• each co-owner can usually dispose of their own share (sell, give, leave by will, sometimes mortgage it);
• decisions about the whole property, such as a sale, a major renovation or a long lease, need all or a majority of co-owners;
• everyday administration may be decided by majority or by the co-owner who lives there;
• any co-owner may be able to ask a court to end the co-ownership by division or sale, in many countries even against the others' will.

The last point is the key risk: in many systems nobody can be forced to stay in a co-ownership for ever. Without an agreement, a dispute can end in a court-ordered sale. Whether and how you can restrict this by contract depends on local law, so ask a local lawyer.

The co-ownership agreement

A written agreement between the co-owners, in addition to the deed, is the most useful document. It does not replace the deed at the land register, but it governs the relationship between you. Cover at least:

• shares and what each pays, including who pays taxes, notary fees and the agent's fee;
• who uses the property and when (a calendar for the holiday months, a rule for guests);
• the budget for running costs, a common reserve fund, and what happens if someone does not pay their part;
• decision rules: what needs unanimity, what can be decided by majority, and who can sign for the group;
• rental: whether to let the property, who manages it, how income is shared and how tax is handled in each owner's country;
• exit and buy-out clauses, see the next section;
• what happens on death, divorce or bankruptcy of a co-owner;
• the language of the agreement, the governing law and the forum for disputes.

Have it drafted or reviewed by a lawyer in the country of the property and make sure each co-owner understands it in their language. A private agreement may bind the co-owners but not always third parties, such as a bank, and sometimes needs to be in a notarial form to be enforceable; check locally.

Exit and buy-out

Plan the exit when everyone is still friendly. Useful clauses:

• A first-offer right: a co-owner who wants to leave offers the share to the others first, on stated terms, within a stated period.
• A valuation method: an independent valuer, or an average of two valuations, and who pays the valuer. Avoid "market price" without a method.
• Payment terms: a lump sum or instalments, and what security the leaving owner gets.
• A lock-in period, such as no exit in the first few years, to protect the group.
• A deadlock rule: what happens if the owners cannot agree, for example mediation first, then a sale.
• Death: whether heirs become co-owners or the other owners have the right to buy the share at the valuation.

Local law may give a right of pre-emption to the other co-owners in some countries, or limit what you can agree. Do not assume that one exists or does not exist. Ask.

Who pays what

Money is the most common source of conflict. Agree in advance:

• the purchase price and the buying costs by share, see total cost of ownership for the typical lines;
• annual taxes and community or building fees, insurance, utilities, repairs;
• a major repair or capital call: how it is decided and what happens to someone who cannot pay (diluting their share, a loan from the others at a stated interest, or a forced sale);
• who pays upfront and recovers later, and how contributions are documented.

Pay from your own account to the agreed account, keep the evidence, and be careful with payments in cash. Banks and notaries abroad ask about the source of funds, and each co-owner may be asked separately.

Mortgage liability

If the co-owners take a joint loan, banks normally require all borrowers to be liable for the whole debt, not only for their share, and the property is the security. If one co-owner stops paying, the bank can ask the others, and in the end enforce against the property. A private agreement on shares does not change that vis-a-vis the bank. If one of you borrows alone against their own share, check whether local rules allow it and whether the bank will accept a share as security. See mortgages for non-residents.

Selling a share

Selling a share is usually possible, but a share is harder to sell than a whole flat. The market for shares is thin, the buyer becomes your co-owner, and the bank (if any) may need to consent. Your agreement should say whether others have a first right to buy, and any local pre-emption right must be respected, otherwise the sale can be challenged in some systems. Taxes on the sale of a share follow the rules of the country of the property and of your residence; see tax residency when relocating.

Practical tests before you start

• Would you still want this partner if their situation changed: divorce, job loss, a new partner?
• Is there an exit that does not need a court?
• Does everyone have the same expectations of use, rent and sale timing?
• Can each person afford a sudden extra cost?

If the answer to one of these is unclear, fix it in the agreement or reconsider co-ownership. In some cases, a company or another legal structure is proposed; that has its own tax and reporting effects and is outside this article, so ask an adviser.

FAQ

Can one co-owner force a sale? In many legal systems a co-owner can ask a court to end the co-ownership, which can lead to a sale or division. Whether this can be limited by agreement depends on local law.

Do we need a written agreement if we are family? Yes. Family co-ownerships often fail through unclear expectations, not bad intent. A written agreement helps everyone.

If the bank loan is joint, can the bank ask me for the whole amount? Typically yes, joint borrowers are liable for the whole debt. Check your loan contract.

Can I sell my share to a stranger? Often yes, but a pre-emption right or the agreement may require you to offer it to the others first. Check local law and your agreement.

Who pays the tax on rental income? Each co-owner is usually taxed on their share in line with the local rules and the rules of their own residence country. Ask a tax adviser in both countries.

How we help

D.H. Realting is a trilingual platform that finds properties abroad and coordinates independent local lawyers and tax advisers, who can draft or review a co-ownership agreement and explain local rules. Land-register and notary information by country is on the European e-Justice portal. See also buying property abroad remotely and our calculators. This text is informational and is not legal, tax or investment advice. Rules change, so verify the current position with a qualified professional.