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March 02, 2008

Condo Concepts: Maintaining Harmony When Sharing

Tips to maintaining harmony when sharing a resort condo

Douglas Gray

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Have you thought about buying a condo in a resort or recreational area with others?

Maybe you want to have someone share the financial outlay to enable you to get into the market, or to buy a nicer condo. Possibly, you enjoy the company of specific friends or relatives who share the same outdoor interests as you do, and you would like to approach them to jointly buy a condo as a shared-use investment.

If you are considering jointly owning a resort condo with others, you should consider the management of the condo as a business. Like any business that works well, you need to have systems in place, and use and care policies. You also need rules and regulations to give structure and to create a practical framework.

Here are some tips and suggestions to consider:

1. Discuss How to Manage a Parting of the Ways
For many different reasons—such as illness, disability, a move, a divorce, financial problems in a business or investments, falling out with other owners, wanting to use the money for other lifestyle interests or to buy one’s own vacation property—an owner may want to sell their equity interest. Conversely, one or more of the owners may want to buy out the other owner or owners. A fair formula should be established for these types of scenarios. There are various methods available.

2. Determine Formulas and Policies for Resolving Disputes
In any joint ownership relationship, there are always potential areas of disagreement or impasse on issues of concern. There should be an objective process to follow, through written procedure and protocol, to find resolutions.

3. Owners Need to Treat the Property Like a Business with a Budget
An agreement needs to be reached about financial expectations: monies to be spent annually for maintenance/upkeep; need, expectations and priorities for improvements; how emergency expenses will be handled; contingency buffer for the unexpected; funds for staples and supplies; who is going to perform the work when repairs or improvements are needed (for example, a work party or hiring a contractor).

4. Policy on Use of the Property and Rules and Regulations

This is an important step that will help you pre-empt conflict. A written policy would cover everything from whether the condo can be rented out, to how much and to whom. Booking procedures should be covered (double-booking, collection, time limits, reminders, bumping, first-come, first-served, etc.) as well as user fees (when and what to charge, security deposit, responsibility for loss or damage, etc.). The use policy should be readily available to the owners, and those using the property or renters. The policy manual should also cover topics from keys, security, storage (shared or non-shared, and closets or rooms allocated for the owners or guests), laundry, smoking inside, to fire extinguishers and smoke alarms, quiet hours and many other issues.

5. Prepare Lots of Checklists

Checklists are an effective and organized way of maintaining continuity of approach, and as a reminder to owners, guests or renters. Common types of checklists would include: opening-up checklist, closing-down checklist, basic pantry checklist, supply checklist, checking-in checklist, checking-out checklist (including clean-up), meal-planning checklist, care and maintenance checklist, and asset checklists (for group or individual owners) for boats, equipment, and other toys.

6. Obtain Legal and Tax Advice on Your AgreementAfter you have prepared a draft agreement, have it reviewed by a lawyer who practices in the area of real estate and contract law. To avoid any perceived conflict of interest, confidentiality concerns, or problems if a dispute occurs in the future, you want to make sure this lawyer is not already acting for one of the other owners. The lawyer should be asked to look for any loopholes or gaps in the content of the agreement, and recommend changes to make the document more legally enforceable.

Once you have the above document draft finalized, take it to a tax lawyer or qualified tax accountant for review. You want this professional to review the agreement and provide feedback on the tax and accounting issues, to make sure that those are taken into account, and have the agreement modified accordingly.

Once the draft agreement has been sanc-tified by a qualified lawyer and accountant and agreed to by all the owners, then it is ready to be signed. This structured framework to pre-empt problems, will provide you with peace of mind and enhance the feeling of group harmony. 

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