Co-owning the family cottage
By Melanie Chambers • Bankrate.com

After many negotiations, the family compromised on less expensive, but still good quality, windows. "I was happy in the end," says Santos.

Santos doesn't have a formal legal document detailing who gets to use the cottage or who pays for what. Their only rule is no renting out to strangers: "If you rent it out, then people expect it's a kind of service and don't treat it well. We were never thinking of using it as a business investment."

Whatever your plans, one lawyer, who has seen such situations turn nasty, says a cottage ownership agreement is a necessity.

Write a cottage agreement
Peter Lillico, a lawyer with Lillico Bazuk Kent Galloway, in Peterborough, Ont., says your agreement should address the following issues:

- Usage allocation."Can anyone come up whenever they like, or should you take turns," says Lillico. Some owners might want to determine the amount of use by the proportion of the cottage they own; for example, if one family owns 50 per cent, they get to use it for half of the summer. Decide among your co-owners what arrangement works best for you.

- Expenses. Lillico suggests creating a hierarchy of expenditures that separates essential spending, such as tax bills, from nonessential expenses, like a new paddle boat. Your agreement should stipulate that everyone pays their fair share of the essential expenses and create a process for how people can opt in or out of nonessential expenses.

- Exit strategy. It's important to outline ahead of time what happens when one party wants to sell their piece of the cottage, especially if they want to sell to someone outside of the family. The agreement may stipulate that the other cottage owners have the right of first refusal of any potential buyers. This sort of arrangement may involve creating a formula whereby they can buy the seller's share over a period of five years, for example.

And what if someone wants to sell their share to another family member who owns four Jet Skis and a pack of wild dogs? What are the rules regarding these possibly unpleasant situations? A restriction on transfers will cover all these possible scenarios, as well as inheritance issues, should you want to pass on your share to your kids.

- Dispute resolutions. Having an arbitration clause in place may save relationships, says Lillico. Owners should decide ahead of time how they are going to tackle sticky situations. As Lillico says, "are we going to battle it out behind the boat house with two two-by-fours until the last person gets their way or do you have business arbitration where majority rules dispute resolution?"

Finally, to ensure everyone is on the same page, owners may want to set up an annual family meeting to discuss cottage issues.

Melanie Chambers is a freelance writer based in London, Ont.