An alternative to divided co-ownership: undivided co-ownership

Since several years, the conversion of existing properties into divided co-ownership is strictly legalized. Accordingly, a property which had at least 1 apartment rented in the last 10 years can’t be converted without the authorization of the Régie du Logement. If this property is situated in the City of Montréal, the owner will first have to obtain a derogation from the borough since all conversion into divided co-ownership is in principle forbiden in Montréal. For example, in the borough Le Sud-Ouest, the derogation will not be issued if the property is inoccupied and the vacancy rate of the residential apartments in the area is less than 3%. Moreover, several boroughs of the City of Montréal have adopted a new by-law with regards to the creation, maintenance and improvment of the parks, playgrounds and natural spaces (see of example http://ville.montreal.qc.ca/portal/page?_pageid=5798,42657625&_dad=portal&_schema=PORTAL&id=23828 ). As a result of this new by-law, the owner of an existing property who proceed with its conversion into divided co-ownership will be imposed a tax of 10% of the value of the land on which the building is situated.

In practical terms, here are the steps to be respected by the owner of an existing property who desires to convert it into divided co-ownership :

  • Request a permit for the conversion into divided co-ownership from the borough and obtain the required derogation (variable costs depending on the boroughs. Between 300$ and 2600$ in the borough Le Sud-Ouest – see http://www1.ville.montreal.qc.ca/banque311/content/le-sud-ouest-%E2%80%93-d%C3%A9rogation-%C3%A0-linterdiction-de-convertir-un-immeuble-en-copropri%C3%A9t%C3%A9-divise )
  • Request the authorization to convert the property from the Régie du logement if one or more apartments have been rented in the last 10 years. The owner will generally be assisted at this stage by a notary or a lawyer (variable fees).
  • Subdivide the property in order for each apartment to be a separate entity at the Registre foncier. this step will be done by a land surveyor (variable fees).
  • Prepare and publiesh the declaration of co-ownership, which has to be done by notarial deed (variable fees). If the authorization of the Régie du logement has been obtained, it is mandatory for the declaration of co-ownership to be published in the year following the authorization unless an extension of delaiy is obtained.
  • Have a new survey prepared by a land surveror showing the property after the conversion into condos (variable fees).
  • Pay the tax for the creation, maintenance and improvment of the parks, playgrounds and natural spaces in the boroughs where this tax is applicable. For example, in the case of a duplex situated in the borough Le Sud-Oues having a municipal evaluation of  472 900$ of which 155 500$ is for the land, the taxe will cost 15 550$.

The total cost of the conversion in this case will be amounting to approximately 25 000$. Is there any way of avoid all those costs and delays ? The answer is yes!

Indeed, for the moment, there is no regulation concerncing the conversion of existing properties into undivided co-ownership. In this type of ownership, the buyer of an apartment is purchasing a percentage of the whole building with the exclusivel right to use his apartment. No permit request at the borough necessary, no authorization of the Régie du logement required, no subdivision to be done by the land surveyor and no tax for the creation, maintenance and improvment of the parks, playgrounds and natural spaces  to pay !  Regardless to the type of conversion chosen (divided or undivided cop-ownership), the result will be the same : each apartment can be sold separately.

The steps to convert an existing property into undivided co-ownership are limited to :

  • Have a new survey prepared by a land surveror showing the property with a plan of each apartment
  • Prepare and publish a notarial indivision agreement which will establish the rules governing the relations between the co-owners.

In undivided co-ownership, the co-owners will share the accounts of municipal and school taxes in proportion to the percentages fixed by the indivision agreement. The conversion into undivided co-ownership does not lead to an increase of the property taxes, contrary to the conversion into condos.

However, it may be noted that undivided co-ownership involbes particularities which will eventually be the subject of an article in this blog (see http://www.lapresse.ca/maison/immobilier/201311/11/01-4709318-que-savoir-avant-dacheter-une-copropriete-indivise.php ).

The main goal of all these regulations from the City of Montréal with regards to the conversion of existing properties into condos, being the protection of the rental housing, is certainly a laudable goal. However, I am of the opinion that it will cause the contrary effect. By discouraging the conversion into condos, the City of Montréal is encouraging undivided co-ownership, which will in addition will deprive the City from vast revenues.

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