Owning property with another person, whether it’s a friend, family member, business partner, or even an investor, can be an exciting opportunity; However, without clear terms in writing, co-ownership can quickly turn into a legal nightmare.
Understanding Co-Ownership in Texas
In Texas, when two or more people hold title to property without specifying otherwise, they generally own it as tenants in common. This means each co-owner has an undivided interest in the entire property, but the percentage of ownership may vary based on the deed or contribution to the purchase.
While this arrangement sounds straightforward, disputes often arise because the Texas Property Code does not automatically provide solutions for day-to-day management issues. Questions like “Who pays for repairs?”, “Who gets to live there?”, or “What happens if one owner wants to sell?” can lead to expensive litigation.
The Risks of Not Having an Agreement
Without a written agreement, co-owners are left to rely on default legal rules or, worse, verbal understandings. Common disputes I see in my practice include:
- Unequal Contributions: One owner invests more money or labor but doesn’t have clear rights to reimbursement.
- Occupancy Conflicts: One co-owner lives in the property rent-free while the other wants compensation or access.
- Management Deadlocks: Owners cannot agree on major decisions such as renovations, leasing, or selling.
- Forced Sales: Under Texas law, a co-owner can file a partition action to force the sale or division of the property—often leading to an outcome neither party wanted.
LLC Ownership vs. Individual Co-Ownership
Some clients ask whether they should hold title to the property through a limited liability company (LLC), with each co-owner being a member. This approach can work well for investment or rental properties because an LLC operating agreement can clearly set out ownership rights, management responsibilities, and exit strategies, while also providing liability protection.
However, there is an important limitation: you cannot place your Texas homestead into an LLC. Texas law provides strong homestead protections, but those protections are tied to the property being owned by an individual or a qualifying trust. Transferring your homestead to an LLC can cause you to lose those protections, create tax consequences, and, in some cases, even violate lender requirements.
Therefore, when the property is your primary residence, you must rely on a co-ownership agreement rather than an LLC structure to set the rules between owners.
Key Provisions Every Co-Ownership Agreement Should Include
A co-ownership agreement is essentially a roadmap for how the property will be used, maintained, and eventually sold. While the details will depend on the specific situation, these provisions are typically essential:
- Ownership Interests and Contributions
Define each party’s percentage ownership, initial contributions, and how future expenses (mortgage, taxes, insurance, repairs) will be shared. - Possession and Use
Clarify whether one owner has the right to occupy the property exclusively or whether use will be shared. Include terms for access if only one party resides there. - Decision-Making Authority
Outline how decisions will be made regarding maintenance, improvements, leasing, or sale. Some agreements require unanimous consent; others allow for decisions based on ownership percentages. - Expense Reimbursement
Address how an owner who pays more than their share of expenses will be reimbursed, either immediately or at the time of sale. - Dispute Resolution
Include methods for resolving disagreements, such as mediation or arbitration, before resorting to litigation. - Exit Strategies
Detail what happens if one owner wants out—options may include buyout rights, first refusal provisions, or agreed-upon procedures for selling the property.
How an Attorney Can Help
A co-ownership agreement should be tailored to the unique relationship and objectives of the owners. Cookie-cutter templates rarely address the nuances that can lead to disputes. An experienced attorney can not only draft an agreement that protects your interests but also foresee potential pitfalls that you may not have considered.
Co-Ownership Agreements When Owning Property
Property disputes between co-owners in Texas can be among the most stressful and costly legal battles. A carefully crafted co-ownership agreement is a small investment compared to the expense and strain of litigation.
If you are considering buying property with someone, or already co-own property without an agreement, it’s not too late to protect yourself. Consult with an experienced Texas real estate attorney to put clear terms in writing and avoid problems down the road.