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. 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 four exit scenarios you need to plan for
1. One party wants to leave, the other wants to stay
The most common scenario. Without a documented exit clause, Party B has no mechanism to extract their equity short of forcing a sale of the entire property. 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.
Key provisions to include: notice period (typically 3–6 months), valuation method, 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.
3. One party dies
If the arrangement is structured as tenants in common, each party's share passes according to their will — not automatically to the survivor. 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?
4. Relationship breakdown
The most emotionally difficult scenario. 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. A right of first refusal prevents Party B from selling their share to a stranger who becomes a co-owner of the family home.
How property valuation works in a buyout
Independent appraisal: A licensed appraiser values the property. Clean and objective, but appraisers can vary. Some agreements specify the average of two appraisals.
Agreed formula: Parties agree in advance to use a formula — such as the average of three estate agent valuations. Faster and cheaper but potentially less accurate.
Market listing: The property is listed and the sale price determines the value. Most accurate but only works if both parties agree to sell.
Funding a buyout
The right of first refusal only works if the remaining party can actually fund the buyout. Options worth documenting include: a defined period to arrange financing (3–6 months), the ability to bring in a new co-owner, and a staged buyout where equity is paid over time with interest. If none are viable, the agreement should specify that the property is listed for sale.
Getting it right
Exit clauses are the section of a co-ownership agreement most families want to skip and most solicitors insist on. The cost of documenting a clear exit process is a few hundred dollars. The cost of resolving a disputed exit without one can be tens of thousands.
This article provides general information only and does not constitute legal advice. Property law varies significantly by jurisdiction. Always consult a qualified solicitor or property lawyer before entering into any co-ownership arrangement.