Why exit planning feels uncomfortable — and why you need it anyway
Talking about how the arrangement ends before it begins can feel like planning a divorce on your wedding day. Nobody wants to open with "so what happens if this goes wrong?" But the exit clause isn't pessimism — it's the thing that lets you enter the arrangement with confidence.
When the terms for ending the arrangement are clear, agreed, and documented in advance, there's no ambiguity to fight over later. The property gets valued fairly. Each party gets what they're owed. And the family relationship — which is presumably the reason you did this in the first place — has a chance of surviving intact.
The four exit scenarios you need to plan for
1. One party wants to leave, the other wants to stay
This is the most common scenario and the one most co-ownership agreements handle worst. Party B wants to move out — perhaps they've saved enough to buy independently, or their circumstances have changed. Party A wants to stay in the family home.
Without a documented exit clause, Party B has no mechanism to extract their equity short of forcing a sale of the entire property — which courts can order but which is slow, expensive, and destructive. With a properly drafted exit clause, the process is defined: Party B gives notice, the property is independently valued, Party A has a defined period to buy out Party B's share, and if they can't fund it, a sale is triggered.
The key provisions to include: notice period (typically 3–6 months), valuation method (independent appraisal, average of two appraisals, or market listing), right of first refusal for the remaining party, and a defined timeline for completing the buyout.
2. Both parties want to sell
The straightforward case — both parties agree to sell and split the proceeds according to their ownership percentages. Still needs documentation to avoid disputes about timing, choice of agent, acceptable sale price, and how costs are split.
Common friction points: one party wants to sell quickly and accept a lower offer; the other wants to wait for a better price. One party thinks the property needs renovation before sale; the other doesn't want to spend the money. A co-ownership agreement should specify how these decisions are made when parties disagree — typically by requiring agreement within a defined timeframe, after which a default position applies (such as proceeding to market at an independently assessed price).
3. One party dies
If the arrangement is structured as tenants in common — which it should be for most multigenerational setups — each party's share passes according to their will, not automatically to the survivor. This means Party A's share might pass to their estate rather than to Party B, potentially leaving Party B sharing ownership with siblings, a stepparent, or other beneficiaries who have no interest in maintaining the arrangement.
The exit clause needs to address this specifically: does the surviving party have a right to buy out the deceased's share from their estate? Within what timeframe? At what price? Without this, the death of one party can trigger a forced sale neither wanted.
4. Relationship breakdown
The most emotionally difficult scenario and the one that most needs a documented process. When the parent-child relationship deteriorates — whether through conflict over the arrangement itself or through external circumstances like a parent remarrying — the co-ownership agreement needs to provide a path that doesn't require the parties to agree on anything other than triggering the exit clause.
This is also the scenario where a right of first refusal matters most. Without it, Party B could theoretically sell their share to a third party — someone with no relationship to Party A who becomes a co-owner of the family home. A right of first refusal prevents this.
How property valuation works in a buyout
The valuation method is one of the most important — and most disputed — aspects of an exit clause. There are three main approaches:
Independent appraisal: A licensed appraiser values the property. Clean and objective, but appraisers can vary significantly in their assessments. Some agreements specify an average of two independent appraisals to reduce this variance.
Agreed formula: Parties agree in advance to use a formula — for example, the most recent council assessment adjusted by an index, or the average of three estate agent valuations. Faster and cheaper than a formal appraisal but potentially less accurate.
Market listing: The property is listed on the open market and the sale price determines the value. Most accurate but only works if both parties agree to sell. Doesn't help if one party wants to stay.
Most family co-ownership agreements use independent appraisal for buyout scenarios and market listing when both parties agree to sell. The agreement should specify who pays for the appraisal — typically split equally, or paid by the party requesting the exit.
Funding a buyout
The right of first refusal only works if the remaining party can actually fund the buyout. This is often the practical problem — Party A is an older homeowner who may not be able to remortgage easily; Party B may not yet have the savings or borrowing capacity to buy out Party A's larger share.
Options worth documenting in the agreement include: a defined period to arrange financing (typically 3–6 months), the ability to bring in a new co-owner rather than buying the full share, and a staged buyout where the departing party's equity is paid over time with interest rather than as a lump sum.
If none of these are viable, the agreement should specify that the property is listed for sale, with proceeds split according to ownership percentages after costs.
What the exit clause should say — in plain terms
A well-drafted exit clause covers: how a party gives notice that they want to exit, what happens during the notice period, how the property is valued, who has the right to buy the departing party's share and within what timeframe, what happens if funding can't be arranged, and how costs are split.
It should also address the scenarios most families prefer not to think about: death, long-term incapacity, bankruptcy, and relationship breakdown. These are harder to discuss but much easier to document in advance than to resolve in the middle of a crisis.
Getting it right
Exit clauses are the section of a co-ownership agreement most families want to skip and most solicitors insist on. The solicitor is right. The cost of documenting a clear exit process is a few hundred dollars. The cost of resolving a disputed exit without one — in legal fees, time, and family damage — can be tens of thousands.
If you haven't yet seen a solicitor about your arrangement, the exit clause is the single most important reason to do so. Everything else can be agreed between the parties. This is the part that needs to be legally watertight.
This article provides general information only and does not constitute legal advice. Property law varies significantly by jurisdiction. Always consult a qualified solicitor or attorney before entering into any co-ownership arrangement.