Joint Cottage Ownership Should Keep The Family Together, Not Tear Them Apart

"Sharing is caring" or so they say.  When it comes to sharing a family cottage, sharing can be the exact opposite of caring when a dispute begins to surface. Today I figured I'd highlight some key discussions we've had with clients who own cabins, and the issues they've had to consider when planning for the cabins future use.

Tough Questions to Take into Consideration

To start, cabin owners will have to ask a number of difficult questions.  For example do owners have the ability to use the cottage at anytime?  If not - when are the periods of exclusive use, and how are they allocated?  What about guests?  When it's someone's turn to use the cottage, are they allowed to invite guests?  Who then is responsible for the opening and closing the cottage?  Anyone who owns a cottage knows about the work needed in this area.  What about bills?  How are things like utilities, taxes, and insurance going to be paid for? Cottages often require significant improvements over time.  Who will be paying for these larger expenses?

As you can see there are a number of tough questions that are going to need to be considered.  It's not always fun, but answers to these questions helps ensure the family cottage remains a place of relaxation and fun. Cost sharing often causes the most discord when it comes to sharing the cabin.  How should ongoing costs be split, equally or according to the proportion of time the family member uses the cottage?  

It's not out of the ordinary to see a large cabin expense not that all members can afford. What does this mean for the person who can't take care of their portion? Can they still use the cabin?  When it comes to those major expenses, creating a reserve fund can be a really effective way to ensure payments are fair and that when an expense arises money is accessible.  Proper planning around money is a great way to prevent it from getting in the way.

Ever dreamt of owning your family cottage with a stranger?  

I'm guessing the answer is no. Failing to properly plan can result in a third party owning a portion of the family cabin in the event one the existing owners is financially forced to sell. Without an agreement, any owner can apply to the court to have his/her portion of the property sold and paid out.

We often see lawyers recommend implementing a selling mechanism within the cottage agreement. The mechanism is designed to protect all owners involved and often puts limits on how much if any of the ownership can be sold.  A common option included in an agreement is the first right to refusal for the family members, combined with a reasonable payout formula.  

If the remaining partners can't afford the departing owners portion, and a third party can purchase shares, however the remaining partners can design a veto within the agreement that would allow them veto over the prospective new owners. If all new owners are vetoed the last resort is often a sale of the entire cottage as a whole.  This typically motivates any remaining owners to just buy out their exiting family member to ensure no strangers will be found cooking bacon during your families long weekend getaway.

Many cottages have been designed with the intent that the cottage is a place for the entire family to conjugate for years to come. With so many questions and decisions to be made, it's naive to think that all family members will agree on each one of them.  Part of your cabin agreement should provide guidance on disputes and how they are solved.

Majority Rule

For basic decisions, maybe a simple majority rule should be implemented.  This can be good for decisions dealing with redecorating or long-weekend use.  But what about the larger more complicated decisions?  These types of decisions frequently require unanimous approval; like deciding on major renovations, inviting in new owners, or selling the cottage outright.  The cottage agreement should identify which decisions need to be unanimous versus those that just need majority.  With decisions that cannot be decided by a majority (even number of cottage owners that can split the vote), it's recommended to use a knowledgeable independent third party to settle the dispute. If owners are split on whether or not the boat house needs a new roof, a roofing expert can be brought in to provide their expert advice.

As much as we talk about certain decisions being the BIG decisions, sometimes it's the small ones that create the most tension when it comes to sharing the space. Who stocks the fridge with food and beverages?  What are the rules when it comes to gasoline and your watercraft? Coming up with a set of cottage rules that are within the agreement can be a great way to clarify expectations and prevent unnecessary tension among owners.

Open and Transparent Communication is Important

Regular meetings are good practice to ensure open and transparent communication on the cottage and future plans.  Meetings can be an opportunity to review the agreement and have discussions around any changes the cottage needs for the upcoming season.  This is a chance to go over operating budgets for expenses, set out a timeline for planned repairs, and allocate certain responsibilities around the cabin.  It's a best practice that will ensure members of the family are on the same page with no unexpected surprises.

As seen from the sheer number of considerations, creating a cottage agreement is of the utmost importance. There is no cookie cutter plan. Each family is unique, with different needs and financial standings.  We highly encourage people to seek professional guidance from a lawyer to ensure proper planning is being done.  At Endeavour Wealth Management, these are situations where we look to our external professionals to provide their expert guidance*. A Cabin should remain a place that families come together, not a place that tears them apart.

*Provided independently and separately from Industrial Alliance Securities Inc. Only the services offered through Industrial Alliance Securities Inc. are covered by the Canadian Investor Protection Fund.

- Brandt Butt, Investment Advisor

Brandt Butt is an Investment Advisor at Endeavour Wealth Management with Industrial Alliance Securities Inc, an award-winning firm by Carson Wealth. Together with his partners he provides comprehensive wealth management planning for business owners, professionals and individual families.

This information has been prepared by Brandt Butt who is an Investment Advisor for Industrial Alliance Securities Inc. (iA Securities) and does not necessarily reflect the opinion of iA Securities. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Investment Advisor can open accounts only in the provinces in which they are registered.