As a Toronto real estate agent, I see family members buying homes together, friends and sometimes business partners. When it comes to purchasing a new property with your spouse, friend, family member or co-investor, you should ensure you are aware of the legal aspects in terms of ownership. When more than one person is responsible for the purchase of a property, ownership tenancy must be established. So let’s get to it!
There are essentially two distinct tenant arrangements when the purchase is made by multiple individuals and this includes ownership as Joint Tenants or Tenants in Common. This decision is important as it is the deciding factor of property distribution in the event of death.
Joint tenancy is an equal partnership where both parties share a united interest in the property. This is mostly used for spouses and families. This keeps the property in the family upon death without any need for title transfer. They have the same rights to live, use, and make property decisions together. In this arrangement, upon one owner’s death, the right of survivorship entails the surviving partner (or partners) as the sole owner(s) without going through the lengthy process of probate.
To validate Joint Tenancy, 4 stipulations must be met, including:
- Interest: Parties must have an equal and identical interest in terms of duration, extent and nature. Two owners would see dual interest, three would have one-third interest.
- Possession: Each party has equal ownership. No one owner has an additional interest or exclusive power for decisions.
- Term: Each party must own the interest for the same duration and at the same time.
- Title: Each party’s interest is established equally and concurrently.
Tenants in Common
Tenants in common differ from joint tenants as this type of co-ownership is for parties without united property interests. The owner’s portion of the property will be separate and distinct, along with their interests. There is no right of survivorship implemented, and owners can leave their share to the party of their choosing as described in their will.
How to decide which route to take? Here is a list of factors to consider when deciding on the legal division of property and each party’s interests.
Right of Survivorship: How do you want the property to be handled in the event of one owner’s death? Consider joint tenancy to keep it within the occupying family, without the need for probate.
Severing Joint Tenancy: In the event of termination of the joint tenancy, and conversion to tenants in common, one of three things can happen;
- Consent– all involved parties agree to dissolve the joint tenancy in writing.
- Conduct–if the agreement is more of tenants in common, the arrangement can be altered for fairness.
- Transfer–the event of one party transferring their portion to another individual or themselves.
Probate: The probate process is costly in terms of both time and money. It is the process of approval where your will must be validated before the property title can be transferred.
Division of Equity: If party members are seeking unequal portions of the property, tenants in common must be used. In this case, it’s also a good idea to make use of Co-ownership Agreements to protect all parties’ rights. Consider a legal third party to draft a paper copy and have all individuals read, understand, and sign the agreement.
Now that you know a little more about property co-ownership, be sure to assess your situation and make the best decision for you and your co-owners. If you have any more questions about this, please reach out to our team and we will do our best to provide more information!