Understanding and establishing operating agreements is an important early step in co-ownership. While tenancy-in-common and joint tenancy are often used, Plum believes an LLC offers the best method for protecting the interests and needs of co-owners. An LLC’s operating agreement provides a framework to address the myriad of issues that can arise during ownership.
The operating agreement spells out exactly how much each member has invested and what the percentage of ownership that investment entails. The robust operating agreement allows each member to plan their use of the property, and to know what their obligations are throughout the term of ownership. The groups will be able to define exactly how they will provide maintenance, upkeep and renovation to the property. Addressing these questions at the onset of ownership allows each member to feel comfortable with their role in the LLC.
Operating agreements also define what to do when the members want to move on from property. The agreement can define a term of ownership so that each member knows the length of their obligation. The steps necessary for transferring ownership of each members’ share can be agreed upon prior to any situation necessitating a transfer. If one member has a need to leave the ownership group, the rest of the owners will know exactly what to expect and can plan accordingly.
Disputes will occur, but a comprehensive operating agreement will offer guidance on the steps necessary to get the group back to cohesion, and failing that, it will guide the group through the sale of the property.
