Joint Tenancy vs. Tenancy in Common

When two or more people are purchasing a property one of the key questions they are asked at the outset is: how will you be taking title to the property? Oftentimes the parties involved are not fully aware of the implications that this has or the legal relationship that is created as a result. There are two common ways to take title to property when two or more people are involved in the transaction. They include Joint Tenancy and Tenancy in Common.

1. Joint tenancy involves ownership by two or more persons of the same property, all of whom hold title to the property and share equal ownership of the property.
2. Tenancy in common is a relationship in which each of the tenants involved has a separate and divisible interest in the property, which may or may not be equal.

As a real estate agent, on behalf of your clients, it is important to be aware of the various considerations that must be made when facing a situation in which there is a joint tenancy or tenancy in common relationship, specifically in situations where one of the tenants passes away.

Where there is a joint tenancy, the surviving joint tenant is automatically entitled to obtain title to the property, and therefore, entitled to sell the property to someone else without any personal representatives of the deceased intervening with the transaction. This key characteristic of joint tenancy is referred to as the ‘right of survivorship’, which means that the full interest in title to a property will transfer over to the surviving joint tenant upon death of the other joint tenant. When acting as the real estate agent for the buyer, and purchasing a property from the surviving joint tenant, it is important to ensure that the seller provides and registers a Proof of Death Certificate on title to the property.

Unlike joint tenancy, a tenancy in common relationship does not have the same ‘right of survivorship’ implications. In this type of ownership relationship, when one individual dies, the death operates to sever the relationship. This means that each party involved would only retain their share of the property in question, and the deceased persons share would be transferred to whomever the deceased had previously determined would be entitled to it, often dealt with by way of a Will. If there is no Will, then the rules set out under the Succession Law Reform Act, R. S. O. 1990, c. S.26 will be applied.

Tenants in Common and Exit Agreements

When you are purchasing property with a friend, a family member (maybe for financing purposes) or with a spouse but in a second marriage, you will likely be taking title as tenants in common rather than as joint tenants.

For instance, often a parent co-signs the mortgage strictly to assist with the financing approval and is then required by the lender to be included on the property title. While that share will likely be a minimal amount (often 1%), the future ownership of this interest should be clearly explained to other family members and be included in that parent’s Will.

In addition to a Will, an Exit Agreement should be entered into by all of the parties involved. This agreement should cover all the reasons which might necessitate a need for the property title to be transferred. As you can probably imagine there are many factors that should be included in an Exit Agreement. It is preferable to have this discussion when you are purchasing and everything is amicable rather than when the reason for the change arises.

Your solicitor can assist with this or the parties can sit down and draft up an agreement between themselves. The truth is that most purchasers and their consultants do not think about this second most important question when the first question is asked; which is “How do you wish to take title?” The second question should be along these lines: “Have you considered: who will receive your share of the property upon your death, what will happen if there is a breakdown in your relationship, what happens if one party wants to sell and the other does not, or even if both parties want to sell, how will that sale be handled? (I.e. privately, real estate agent, what agent etc.?) If all of these factors are taken into consideration at the outset it will allow for a much smoother transition if and when a situation arises where title must be transferred.

The content of this Blog is intended to provide a general guide to the subject matter. The information does not constitute legal advice and a solicitor and client relationship is not created.