How to Draft a Fractional Ownership Agreement

A fractional ownership agreement is a legal document that permits multiple persons to share in the ownership of a property. These agreements are common with vacation homes, timeshares and other seasonal rental properties. If you are considering entering a fractional ownership agreement with another party, you should consider these potential questions not just for today but for the future of your ownership in the property.

Is the Contract Legal in the State?

The first thing you must do when creating any ownership agreement for a piece of property is assure the city, county and state provide for this option. You may find fractional ownership is not permitted inside a particular city's limits. If it is permitted, you will learn there are regulations that provide language for all real estate contracts. Be sure to start by using this language. It is best to consult an individual with a real estate license in the state where the property is held.

How Predictable Is the Schedule of Usage?

You will need to determine how ownership will be broken down. For example, is it weekly, monthly or quarterly? Will the same party be guaranteed to have use of the facility during the same time each year? What policies should be put in place in case this will be changed in the future? For example, some fractional ownership properties extend from one location to the next, with hundreds of shareholders taking part in the property's maintenance and upkeep. One individual may decide to take a trip to visit another property. If you would like this to be possible, you will need to put it into the contract.

Can the Space Be Rented?

Some fractional owners would like the option to rent out their time in the property if they choose. Others would prefer that no renters be permitted, as renters often tend to be less mindful of maintenance and upkeep concerns. The owners must decide how to handle this issue up front, and all owners should sign a contract agreeing to the final resolution.

How Are Ownership Costs Determined?

Costs to maintain the property will be split up between owners each year. These costs can include landscaping, cleaning, repairs and services. These costs are likely to vary year to year. If the costs will be predetermined in the contract for a given year, there should be a way for those costs to be altered in the future. Further, if certain owners use the property more than others, it is typical for those owners to carry a greater burden of the cost. This schedule may also change, however, and options for change should be included in the agreement as well.

How Can Resale Occur?

Property ownership often leads to profit upon resale. One of the owners may wish to sell his or her share prior to the remaining owners. If this occurs, there needs to be a process for approving the sale. This issue should be predetermined even if the individual owners have a close relationship at the onset of the agreement. Relationships can fracture over time, and a contract is the last line of defense against unfair treatment.

blog comments powered by Disqus