Expert: Real Estate Co-ownership Can End Against Owner's Will Through Forced Sale

Real estate co-ownership is an increasingly common solution in Estonia, but a seemingly simple joint purchase can lead to complex disputes and, in the worst case, forced sale of the property if agreements are inadequate, comments Angela Virak, Senior Real Estate Agent at 1Partner Real Estate.

In recent years, acquiring real estate as co-ownership has become more frequent, encouraged by rising property prices and the need to share financial burdens and risks. "Co-ownership allows people to enter the market for whom finding property alone would be unaffordable, but at the same time it creates a long-term and legally binding relationship between owners, whose functioning depends largely on the quality of the agreements," says Angela Virak. She adds that although co-ownership is usually established in a relationship of trust, sufficient attention is often not paid in the initial phase to preventing possible future disagreements.

According to Virak, problems typically emerge when the interests of co-owners change over time. She gives an example of a situation where two people bought an apartment as a joint investment, later one party wanted to sell the property while the other wanted to continue renting it. Since there was no prior agreement on the conditions for buyout or termination of co-ownership, the dispute went to court and the apartment was eventually sold at public auction. "The end result did not meet either party's expectations. This shows well that the biggest risk of co-ownership is not the form of ownership itself, but poorly thought-out agreements," notes Virak.

According to the experienced broker, people are also often unaware that in the case of forced sale, the division of money does not take into account the co-owners' actual investments or the condition of different parts of the property. "Many people mistakenly believe that with co-ownership, they own a specific physical part of the property. In reality, one owns a theoretical share of the entire property and the proceeds from the sale are distributed accordingly. This means that even if one co-owner has contributed more or maintained their portion in better condition, this may not affect the final outcome," she explains.

Virak emphasizes that most disputes related to co-ownership are, however, preventable if sufficiently detailed agreements are made at the time the co-ownership is established. It is advisable to conclude a notarially certified order of use of the property, distribution of expenses, principles of making investments and decision-making processes, and also to set out the conditions for terminating the co-ownership or buyout. "Trust alone is not enough. The interests of close people can change over the years and general agreements may not provide sufficient legal certainty in later disputes, which is why it is important that the agreements are clear and, if possible, notarially executed," explains Virak. She strongly recommends involving a real estate specialist in the transaction who understands the legal aspects of co-ownership, is able to anticipate possible risks, and helps formalize agreements in such a way that they protect all parties in the future as well.