Co-ownership is one of the most problematic figures in the real estate law, which creates preconditions for disputes and disagreements between the co-owners (in general – relatives). Most often co-ownership arises in case of succession of the estate of a deceased person or when two or more persons jointly purchase real estate.
If a conflict arises between co-owners in respect to a co-owned real estate, relevant actions for terminating the co-ownership should be undertaken (preferably voluntarily). The latter can be done through a contract for voluntary partition. An alternative in some situations could be the signing of a contract for exchange, as well.
Both voluntary partition and exchange are characterised by certain specifics. We have to be familiar with the latter in order to be able to decide which of the two contracts would be more suitable for us (depending on the situation we are in).
What is a contract for voluntary partition?
Voluntary partition is the most popular mechanism for terminating of co-ownership.
The contract for voluntary partition is concluded in written form with notarization of signatures and has to be registered in the Real Estate Register.
IMPORTANT! The contract for partition must be signed by all co-owners. If a real estate is co-owned by four persons, but only three of them are willing to voluntarily partition, no valid contract can be concluded in this respect.
A voluntary partition may be a transaction without monetary equalization of the co-owners’ reciprocal shares or a transaction with additional monetary equalization of the shares.
What is a contract for exchange?
The exchange could be perceived as a variation of the purchase-sale contract. Unlike the seller, who receives a monetary sum, the exchanger (most often) receives another real estate in exchange for the transfer of his property. There is no legal obstacle a real estate to be exchanged for another asset, for example a movable item.
The contract for exchange is always concluded in the form of a notary deed. This applies even when the exchanger of a real estate receives a movable asset in his ownership.
Unlike a contract for voluntary partition, the idea of terminating the co-ownership is not the main purpose of the exchange contract. This is one of the main differences with the contract for voluntary partition, which, as mentioned above, is a general mechanism for termination of co-ownership. Notwithstanding the fact that the termination of co-ownership is not the main purpose of the exchange contract, in certain situations it could be used in that respect (where the subject of the exchange are ideal parts of different properties owned by the same persons).
The purpose of the exchange is rather to unite two purchase-sale transactions between same persons in one notary deed in order to optimize the expenses of the parties.
The exchange, as the voluntary partition, can be a transaction with no monetary equalization between the parties, or a transaction with a supplementary payment (if there is a difference between the values of the exchanged properties).
What are the main advantages of a voluntary partition compared to an exchange (in the hypothesis of termination of co-ownership)?
The main advantage of a voluntary partition is that the ownership of the entire real estate is recorded in one document. This is not the case for the exchange of ideal parts of co-owned properties. In the latter, by the virtue of the notary deed of exchange, each party is legitimized as the owner only of the relevant part of the property being exchanged which they receive in their ownership and not of the property as a whole.
Another positive aspect of the contract for voluntary partition is the significantly lower costs for the execution of the transaction compared to those payable for the exchange. On the one hand, this is due to the more simplified form of the contract, as mentioned above, and on the other hand, in the case of voluntary partition, local tax is only due when the share held before the partition is enlarged, and only on the amount of the excess. In the case of exchange, local tax is due on the entire value of the more expensive real estate (asset).
When is an exchange made instead of a voluntary partition?
As mentioned above in the article, for the partition agreement to be valid, it must be signed by all co-owners.
In the case of an exchange, there is no such legal requirement – only two of the three co-owners may exchange their shares.
For example, “A”, “B” and “C” are co-owners, with equal shares, of the properties “X” and “Y”. If there is no consent of “C“, a contract for voluntary partition cannot be proceeded. At the same time, if „A“ and „B“ have good relations with each other, they may decide that „A“ shall transfer to „B“ his shares in property „X“ and in return „B“ shall transfer to „A“ his shares in property „Y“. Thus, „A“ would „exit“ from co-ownership of one of the properties and „B“ would „exit“ from co-ownership of the other property, accordingly each would remain in co-ownership with „C’“ in only one property and not in two. In addition, each of „A“ and „B“ will now have a larger share in the common co-ownership with „C“, which could provide them certain advantages, including in case of a court partition.
There are also other specific hypothesis where the exchange of ideal parts of properties may be a better alternative to the contract for voluntary partition.
Who is the competent Notary in case of exchange/partition of properties located in different municipalities?
Both exchange and voluntary partition are generally executed by a Notary of the location of the properties.
A question arises which is the competent Notary if the properties are located in different municipalties – for example, one property is in Varna and the other is in Sofia. In such a case, according to our legislation, the parties can freely choose whether the transaction will be made before a Notary in Varna or before a Notary in Sofia.
If you are considering voluntary partition in case of co-ownership or exchange of immovable property, Atty. Dilyan Kolev can advise you which is the most suitable option for you depending on the specifics of your case, as well as provide you with comprehensive legal and factual assistance in connection with the lawful implementation of the relevant transaction.