Contract of Ownership: Everything You Need to Know
A contract of ownership outlines the terms and conditions of a sale agreement. Ownership can apply to a variety of things, such as a home or a business.3 min read
2. How ownership is shared
3. How to split costs
4. How a breakup will affect ownership
5. Small Business Ownership and Writing Contracts
Updated November 23, 2020:
A contract of ownership outlines the terms and conditions of a sale agreement. Ownership can apply to a variety of things, such as a home or a business.
A Contract of Ownership by an Unmarried Couple
A couple that isn't married but plans to own any real property, such as a home, should have a written contract in place. For investments of this site, it's not enough to make a verbal agreement and expect everything to work out all right. If your relationship sours in the future, parties may remember the details in a spoken agreement quite differently.
When it comes to something as expensive and important as a home, written contracts allow you to protect yourself if you separate from your partner. Even if the two of you share equal ownership, a written agreement can make a dissolution much easier.
Basic terms to include in an agreement when a couple isn't married and wants to share ownership of a home are the following:
How ownership is shared
Normally, you'll do this as joint tenants or tenants in common.
How to split costs
This may include the following costs:
- Purchase price
- Down payment
- Closing costs
- Other housing costs, such as maintenance and repair bills
Some couples share the costs equally, but you may decide on another arrangement that works best for you. To decrease the number of disputes over how to pay for home improvements, some couples decide that improvements over a set amount — you decide the amount — require consent from both parties, and each partner pays half.
How a breakup will affect ownership
There are three possibilities in a breakup:
- One party wants to keep the home and the other one does not.
- Both parties want to keep the home.
- Neither party wants the home.
Most likely, both parties will move on or only one wants to stay. However, problems can arise if both parties want the house. A clause in the ownership contract may anticipate this possibility by offering some choices in deciding who gets the home in this case.
For instance, you might want your agreement to automatically give one party the right to buy out the other's share at fair market value within a certain period of time, such as 60 or 90 days. Alternately, you may decide on a coin toss as to who gets to buy out the other.
You could also come up with your own ideas on figuring out who owns the house if both of you want it. For instance, you can hire a mediator to help you make the decision.
If one partner buys out the other, it's very important to change the title to reflect the new ownership.
Small Business Ownership and Writing Contracts
Business contracts cover important agreements that you enter into with other parties. You should learn how to draft a good contract if you're a small business owner. You may use a lot of informal agreements that aren't written or documented, but when it comes to important agreements, taking the time to draw up a formal contract is well worth it.
How do you know which agreements are important? They're ones that you rely on that can affect your business's future.
Contracts give parties the chance to do the following:
- Limit liability
- Clearly define expectations and obligations
- Specify payment terms
- Split up business risks
- Ensure everyone understands their responsibilities
Consider this: If you spend more than five minutes wondering whether you need a contract, chances are you do.
What makes a contract valid? Typically, these four elements contribute to a legally binding document:
- Both parties demonstrate that they understand and agree to essential terms in the agreement.
- Consideration, which is the exchange of something of value, such as goods, cash, or a promise to do something
- A willingness to enter into the contract, usually in the form of a signature, but oral contracts are sometimes valid, depending on the situation
- Each party's legal competence, meaning each is of sound mind, and no one is a minor
Contracts offer many protections in business relationships. Knowing how to write and understand legally binding contracts is beneficial in many situations.
If you need help with a contract of ownership, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.