When you purchase a property alone, it’s clear what your responsibilities are because you own 100% of the property. But what happens if you purchase a property with someone else? How can you define and characterize the nature of your ownership of the property?
Deliberate and strategic registration of legal ownership of property is a cost-efficient and important way to define ownership and to plan for transferring (an interest in) a property in the event of the death of an owner. In order to plan effectively, it is critical that owners understand tenancy options and impacts.
Joint Tenancy
Joint Tenancy occurs when there are 2+ owners of a property and each owner holds an undivided interest in the whole property as a “joint entity,” meaning that each owner has separate rights but they have all agreed to own the property in the same manner as if they were one single owner. Upon sale of the property, one cheque is payable to all owners jointly, unless there is an agreement – like a co-ownership agreement or bare trust – stating otherwise.
Most importantly, Joint Tenancy confers a right of survivorship, meaning that if one owner dies his property rights are extinguished and the surviving owner(s)’ property holdings are increased – regardless of what the deceased’s Will states – because the right of survivorship causes the property to pass outside of the deceased’s Will and estate, without triggering probate.
This type of tenancy is commonly and almost exclusively used in family settings. For example, if spouses are buying a property together, they may take title as Joint Tenants as a purposeful method of estate planning, knowing that the property will pass to the surviving spouse upon the death of the first spouse.
Tenancy in Common
Tenancy in Common refers to fractional ownership, where each party owns their own interest in a property and, upon sale of the property, receives net sale proceeds in proportion to his registered interest on title. Tenancy in Common does not confer a right of survivorship, which means that upon death of an owner, the deceased’s ownership interest falls into his estate, is governed by his Will, is subject to probate, and passes to the named beneficiary(ies) in his Will.
This tenancy is most often used amongst business partners, friends and/or siblings who all purchase a property together. For example, Jasmine, Aurora, Belle and Ariel are all friends who decide to purchase a house together. They could register on title as Tenants in Common for ¼ interest each. Alternatively, they may equate differing financial contributions to the property with unequal ownership interests: Jasmine 20%; Aurora 15%; Belle 55%; 10% Ariel. (Note: the sum of the interests must always add to 100%).
Combination Ownership
It is also possible for the ownership types to be combined when there are 3+ property owners. The combination means that owners can have different tenancies in relation to other owners. The combination of tenancy types is most common when multiple families and/or couples own the same property.
For example, Jasmine and Aladdin are married. Belle and Beast are married. Both couples intend to leave their interest in the property to their own spouse only. Therefore, they decide the register as follows:
Jasmine and Aladdin own 40% of the property as Joint Tenants
(If Jasmine dies, Aladdin will hold the full 40% of the property to himself, and vice versa).
Belle and Beast own 60% of the property as Joint Tenants.
(If Belle dies, Beast will hold the full 60% of the property to himself, and vice versa).
Note: The above tenancies are “grouped” such that the spouses are Joint Tenants with each other and the couples are Tenants in Common with each other, so that the right of survivorship does not cross over and is not shared between the couples.
If you have questions about tenancies and how they impact your estate planning, or if you need to change the existing tenancy registration of your property, please contact our office.
