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Everything you always wanted to know about France - from France |
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Brief Explanation of Co-OwnershipWhat is vacation home co-ownership? Vacation home co-ownership (sometimes also known as vacation home partnership) is an arrangement where several individuals or families buy vacation property together and share the costs and use of the property. Typically, each of the co-owners owns a percentage of the property, is shown on the title and deed as an owner, and acts as a co-borrower on a mortgage. A detailed co-ownership agreement allocates usage rights, costs and responsibilities among the co-owners. Why co-own a vacation home? Although many people dream of owning vacation property, most either can't afford the type of property they want, or reason that they would not use the vacation home often enough to justify the expense. Co-ownership provides a solution to these problems by allowing you to pay only a fraction of the costs and ongoing expenses of vacation home ownership, and share the risks of unforeseen maintenance problems and value depreciation with others. Of course, in exchange for spreading the costs and risks, you give up some of the usage rights and freedoms that you would have if you owned the property alone. But job and school commitments prevent most people from using a vacation home for more than a few weeks or months each year, and some loss of freedom and control is often an acceptable sacrifice for the huge cost savings. How does vacation home co-ownership differ from time shares? Although the ownership structures of arrangements known generally as "time shares" vary from place to place and among different developments, these arrangements always involve a large group of owner/users, an organizer who put the deal together, and an outside management company that will operate the property. - Vacation home co-ownership generally involves usually 4-10 people, no organizer or developer, and the option of self-management. Although it is impossible to make a generalization about which type of arrangement is best, here are some issues to consider when comparing possibilities: - What is my per-night cost when I add up all of my annual costs (including management fees and dues) and divide them by the number of days I can use the property? - Will I have any control over how my costs (particularly management fees and dues) increase over time? - To what extent am I free to rent out the vacation home and control the rent charged? - If I want to vacation somewhere else, how easy is it to get the location I want at the time I want it? How readily can I re-sell, and is there actually a market for my interest? How do vacation home co-owners allocate usage? Deciding how the vacation home will be used is usually the first step in structuring the co-ownership arrangement. Focusing on usage first usually makes the rest of the organizational process easier. This is because a co-owner's right to use the home, or his/her right to earn rental income, are the most important and valuable benefits of ownership. There are two basic models for allocating usage rights. In the "Usage Assignment Approach", each owner is assigned the exclusive right to use the home during a specified number of days, weeks or months each year. During each co-owner's assigned usage period, he/she can live in the home, allow family and friends to use it, rent it out (and keep the rental income), swap it, or leave it empty. There are a variety of methods (discussed below) for determining which days will go to each co-owner in any particular year. When the Usage Assignment Approach is used, the purchase price and ownership of the home is generally divided in proportion to the amount of usage allocated to each co-owner. The second basic model for allocating usage rights is the "Pay-To-Use Approach". In this arrangement, co-owners pay a pre-agreed "usage fee" for each day or week of usage. The usage fees, along with any rental income generated if the home is also rented to non-owners, are used to pay the expenses of ownership. If the usage fees and rental income together exceed the expenses, the surplus is divided among the owners; if there is a shortfall, each owner must contribute. Here again, there are a variety of methods (discussed below) for determining when and how often each owner will be permitted use the home, and how usage will be allocated if two or more owners wish to use the home at the same time. When the Pay-To-Use Approach is used, the purchase price and ownership of the home can be divided based on what each co-owner can afford, their investment goals, or any other criteria the group finds useful, but purchase price and ownership need not have any relationship to usage. There are a large number of variations and hybrids on these basic usage rights allocation models, and each group needs to find an approach that works for them and their property. For example, it is possible to employ the Usage Assignment Approach, but still allocate a certain number of weeks each year as "Pay-To-Use" weeks, meaning that during those times the home will be rented out to owners or to non-owners and the resulting income split among the owners in proportion to ownership. In another variation, it is possible to employ the Pay-To-Use Approach but still give co-owners preferences or discounts for a certain number of weeks each year. How do vacation home co-owners make decisions? Regardless of how many co-owners will be in the group, it is useful to establish certain mandatory duties, things the group will be required to do unless all owners otherwise agree. These mandatory duties should include allocating usage, paying the recurring operating expenses, and maintaining the building in good condition. Establishing mandatory duties prevents an individual owner (in a group of only two owners), or a majority of owners (in a group of three or more owners), from taking actions that endanger the group investment. For actions that are not mandated by the co-ownership agreement, the group needs to vote. In groups of only two co-owners, voting is obviously problematic. If the co-owners do not agree, the outcome depends on how the co-ownership agreement treats the item under consideration. If the agreement states that the action under consideration requires the consent of both owners, no action will be taken since the owners did not consent. If the agreement is silent on the issue, the co-owners will need dispute resolution assistance, typically mediation and/or binding arbitration. Groups of three or more co-owners typically have tiered voting systems where certain decisions are made by a majority, and certain decisions require unanimity (or alternatively, a larger majority). Decisions requiring a higher level of approval are typically those involving major physical changes to the property, large expenditures, changing usage rights allocations, selling the entire property, and borrowing money against the property, and could also include anything else the group thinks is particularly important. One particularly important but often overlooked area of decision making and potential dispute is the layout and furnishing of the shared vacation home. The property can become an overly cluttered repository for all of the co-owner’s unwanted furnishings, or an unpleasant maze of clashing tastes. I suggest that the co-owners initially agree on a furniture layout and, if items must be purchased, a budget and plan for how purchasing decisions will be made. Once the initial furnishing and decorating There are over 2,000 features and articles on this site about French life and living in France. You can search from the search box above. Do browse through our website and please use the advertising links, they help pay for the site. I do try to reply to all mail - Contact Me - most is about property or living in France. I publish comments in this newsletter which I believe are of interest and may help find answers for people wanting to come to France. I hope readers will go to the adverts which help support our overheads. |
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