In many cases, ownership of real estate properties is indefinite to a certain part of the property but extends to the whole of the property as a whole (shared possession). In these cases, no joint proprietor may determine that he owns a specific part of the land and realize his share of the title through that part separately from the rest of the land.
In order to do this, it is necessary to settle the proprietorship of the land in such a way that each joint owner may act in relation to his part of the land as he sees fit, without being dependent upon his co-owners, and for this to happen (inter alia) a joint ownership agreement must be drawn up between the proprietors.
Joint Ownership Agreements – overview
The Land Law, 5729-1969 (“the Land Law”) stipulates that the ownership of each joint proprietor of land is non-specific (shared possession) and that the underlying presumption is that the shares of the joint proprietors are equal (see section 27 and section 28 of the Land Law). The Land Law goes on to provide that an agreement may be concluded between the co-owners of the land in order to regulate its management and common use.
The main rationale for entering into a joint ownership agreement is to partition the land so that each joint owner has a specific share which he can then do with as he pleases, provided that he does nothing to undermine the rights of the other joint owners in relation to their parts of the land. Of course, partitioning the land into specific sections and allocating them to the joint proprietors requires agreement on a blueprint showing each part of the land and defining which part shall go to which joint owner. In this context, it is important to note that in most cases it is necessary to prescribe mechanisms for balancing the interests of the proprietors where the location of a defined part of the land affects its value (front of the plot versus the rear, proximity to bordering nuisances, etc.).
The importance of a joint ownership agreement increases sevenfold where the proprietors wish to construct a joint development project on the land. In these cases, the joint ownership agreement also regulates the entire relationship between the parties with respect to construction of the project, from the planning stage, through the development and execution stages, to the stage of the project’s completion, including its sale. A joint ownership agreement is also important in these cases in order to enable third parties to participate in the project, be they developers or any other partners, and to establish finance mechanisms to the project. Incidentally, in these cases the units in the project can only be divided between the joint owners of the land after the planning authorities’ endorsement of the detailed planning of the project has been obtained. In addition, after the detailed planning has been approved, appraisal mechanisms must be created in order to balance the shares of the co-owners (again, everything shall be formulated in advance within the framework of the joint ownership agreement).
A notable example of when drafting a joint ownership agreement becomes necessary is where an acquisition group is formed in order to purchase and jointly initiate a development project on a land. Aside from a joint agreement to purchase the land, the parties also sign an extensive joint ownership agreement which regulates the rights and obligations of all the co-owners in relation to each other and in relation to professional consultants (planners, lawyers, accountants, etc.) vis-a-vis the development and construction of the project.
Common mechanisms in Joint Ownership Agreements
The scope of the joint ownership agreement and the nature of the mechanisms specified therein are (probably) influenced by many variables. The circumstances in which the land was acquired, the size of the plot, availability of the building rights, the number of joint owners, etc. all influence the need to draw up a coownership agreement and its nature.
However, it is still possible to identify a number of mechanisms commonly found in joint ownership agreements which regulate the partition and ongoing management of the land, the taking of decisions, dispute resolution, the joint appointment of professionals and the granting of irrevocable powers of attorney in order to advance the project, future dilution in the event of non-payment of funds by one of the joint owners, etc.
A common chapter in joint ownership agreements concerns the curtailment of the co-owners’ rights to request a severance of the joint ownership of the land. Since land development involves protracted processes, the need often arises for joint owners to reach a consensus that should they decide to construct a joint development project on the land (and certainly a significant one) then until it is completed they shall be precluded from requesting severance of the joint ownership. Section 37(b) of the Land Law stipulates that where a joint ownership agreement contains a clause proscribing such severance for a period of more than 3 years, a court may revoke the prohibition, should it consider it right and just in the circumstances to do so. We would point out parenthetically, that in our view, consideration should be given to extending the aforementioned period through amending legislation allowing the owners of large lots which require significant planning procedures the time needed to formulate the project, or alternatively enabling a renewal of the severance limitation period under certain conditions.
Registration of Joint Ownership Agreements at the Land Registry (Tabu)
There is a significant advantage in registering the joint ownership agreement at the Land Registry (Tabu), since following such registration the agreement and the rights and obligations specified therein, shall be binding on any third party who replaces one of the current joint owners of the land by purchasing or receiving his share.
It should be noted that the courts have repeatedly held that this is not a negative arrangement, and even if not registered at the Land Registry the agreement shall still be binding on any third party provided that it can be proved that he was aware of its existence.
Many real estate assets are jointly owned without being divided between the joint owners (shared possession), a fact that severely curtails the co-owners’ ability to maximize the value of their property, and even more so to undertake trivial activities in relation thereto. Joint ownership agreements assist the parties to establish orderly arrangements for developing the property, taking decisions regarding its management, and implementing procedures for dividing it between them. The manner in which the joint ownership agreement is drafted is of great importance, and should take into account all future scenarios for development of the land in order to provide a solution for them in the provisions and the mechanisms delineated in the agreement.