Tenants in Common (partnership) Agreement Tips for Home or Vacation Home

TENANTS IN COMMON AGREEMENT FOR HEIRS OWNING HOME

A common planning technique for many senior clients is to gift a vacation or second home to their children or other heirs. These new owners should prepare a simple tenants in common agreement governing their relationship, decisions about repairs and maintenance, use, etc. to minimize the likelihood of future conflicts. Consider the following sample clauses when drafting such an agreement:

The overall management and control of the business and affairs of the Family Vacation Home shall be vested in the Owners collectively.

Except where expressly provided to the contrary, all decisions with respect to the management and control of the Family Vacation Home must be approved by unanimous written consent of all of the Owners over the age of 21, and shall be binding on the Family Vacation Home and on all of the Owners.

They shall keep, or cause another to keep under their supervision, all books of account and other records required by the Family Vacation Home in accordance with good accounting principles and procedures (which can include the tax basis method of accounting) applied in a consistent manner, keep statements, receipted bills and invoices and all other records covering all collections, disbursements and other data in connection with the Family Vacation Home.

Maintain all funds relating to the Family Vacation Home in a bank account or accounts and, subject to the terms hereof, have the power to deposit and withdraw funds. However, no funds may be commingled with funds or accounts of any Owner. Checks or other disbursements must be signed by no less than Three (3) Owners over the age of 21.

If the Owners determine by a majority written vote of all Owners over age 21 that the Family Vacation Home requires additional capital, for reasonable repairs or operating expenses, all Owners shall make equal contributions to the Family Vacation Home. If any Owner is unwilling or unable to loan the required amount and the other Owners loan the Family Vacation Home the additional amount, interest shall be paid on this additional amount at the rate of the federal mid-term rate as determined pursuant to Internal Revenue Code § 1274(d) and the regulations thereunder, plus two percent.

No Owner, without the prior written consent of the other Owners, shall mortgage, pledge, sell, assign, hypothecate or otherwise encumber, transfer, or permit to be transferred in any manner or by any means whatever, whether voluntarily or by operation of law, all or any part of its interest in the Property, except to the other Owner as provided in this Agreement. [**Often an exception is carved out permitting a transfer to a trust for the benefit of an Owner’s family].

There are a myriad of details that can be addressed in the agreement. While specifics will vary depending on the property, family, use and other factors, consider the following:

• Who can use the vacation home and when? Example: Your client’s daughter and her family can use the home for Christmas in even years. Your client’s son and his family can use it in odd years.
• Allocation of costs. Who pays for what? Example: Each child could contribute a pro-rata share for taxes and interest. Other expenses could be allocated by the number of days each family uses the property.
• Who decides if an improvement is to be made? Perhaps the managers or a unanimous vote of all family members of the senior generation (e.g., your children only, not grandchildren) can decide.
• Smoking, vegetarian kitchen facilities, and other personal matters of importance.
• Who chooses decorations and furnishings? Who pays for them?
• Who can make legal decisions (e.g., appeal a property tax assessment)? This could be handled by a person or heir designated by you, or elected by the heirs generally.
• What insurance coverage should be maintained?
• Can an interest be sold? At what price and to whom? Should buy out provisions be included in case certain family members don’t get along?
• Are pets allowed? What if a family member has allergies?
• Who is allowed to use the home? Step-children? Unmarried partners? Ex-spouses? Friends? Your frat brothers?