Taking Title as Joint Tenants v. Tenants-in-Common As Co-Owners
co-owners common law , Prior to purchasing any property, it is important that purchasers consult their lawyer(s) when giving thought to the manner in which they will hold ownership title to property. Title is held either as a joint tenancy or tenant-in-common – we review those main differences in our previous blog post, here. Where there is a single purchaser, or where title is shared between common law partners or spouse, this election is fairly straightforward.
However, in the context of the co-ownership of property, the selection of title structure is critically important, not only in terms of the ownership structure itself, but also its impact on financing, estate issues and investment liquidity.
Defining what title structure is best-suited for co-ownership requires consideration of the size of proportionate shares that co-owners will hold as well as the nature of the relationship between owners. A co-ownership agreement is a must-have – we discuss co-ownership agreements in our previous blog post here.
Main differences between a joint tenancy and a tenancy-in-common in the context of
One key distinction between joint tenancy and tenant-in-common is that joint tenants are granted a right of survivorship, whereby the interest in property held by a co-owner flows to the surviving owner(s) upon the death of the departing owner.
Such a feature automatically removes the property interest from the deceased’s estate, bypassing the deceased’s will. It also enables the transfer of title to the surviving co-owner without a requirement to first obtain a court grant of probate, which saves the remaining owner from having to pay probate fees on the value of property.
By contrast, under a tenancy-in-common, tenants hold title individually regarding their respective property interest. As such, a co-owner is entitled to dispose of or encumber it as they wish. Upon death of a tenant-in-common, the tenant’s share passes to the estate, becoming an asset of the estate, assuming that no other legal right or contractual obligation affects this transfer. Subject to any contrary stipulation via agreement, a tenant-in-common may pass title to other parties via their Will, meaning that in the event of death, ownership transfers to the intended beneficiaries or heirs, undivided.
Another reason why tenancy-in-common is particularly useful to co-owners is the ability of tenants-in-common to hold unequal ownership interests in property. While joint tenants must hold equal interests in property, proportionate to the number of tenants involved, tenants-in-common have the flexibility to apportion title in unequal proportions, with each co-owner maintaining a different ownership percentage, ranging anywhere from just under 1% to just over 99%.
Tenancy-in-common in the context of co-ownership may increase the likelihood of successful lender financing, making all co-owners eligible for certain mortgage and finance products. The structure is also a simple way of reflecting an ownership interest, as title can be apportioned in accordance with each co-owners financial contribution.
For example, a co-owner who contributes 25% of the down payment to a property, and who commits to taking responsibility for 25% of the monthly mortgage and operating expenses, can be registered on title as having a 25% ownership interest.
Further, a varied ownership interest also means that tenants-in-common can assign each co-owner varying rights and obligations to the property, in accordance with different variables. For example, property rights and obligations can be assigned according to space, time, equity (occupation vs. investment only) and use purposes. By contrast, where a joint tenancy exists, all co-owners have the equal right to enjoy, occupy, and modify the entire property.
Lastly, the timing of making an election of joint tenancy vs. tenancy-in-common is important: while joint tenants must take title simultaneously from the same instrument (e.g. a deed or Will) at the same time, tenants in common may come into ownership at different times.
What role does a co-ownership agreement play in selecting how to take title?
It is important to keep in mind that, regardless of which title structure is used, the co-owners’ rights & responsibilities may be allocated differently under the provisions of a co-ownership agreement.
Whether a tenancy-in-common or joint tenancy, a co-ownership agreement should provide for a number of issues including:
- Division of property according to usage rights and maintenance responsibilities;
- Description of co-owners’ financial obligations including initial deposits, mortgage arrangements, taxes, reserve funds, common area maintenance and other expenses;
- Formulas and timelines for determining and making co-owners’ monthly contributions to expenses and mortgage payments with periodical adjustments to the same;
- Property management concerns including the management of accounts, taxes, and mortgage;
- House-rules governing enjoyment of the property by co-owners and tenants and enforcement provisions;
- Meeting and decision making procedures and timelines;
- Provisions addressing scenarios that would result in default, available remedies as well as default prevention;
- Options in respect of the sale of property interest, rights of first refusal, requirements as to group approval of prospective purchasers; and
- Alternative dispute resolution mechanisms.
Aura LLP is Ontario’s leading law firm in co-ownership of residential and commercial property. We have helped dozens of co-owners structure their agreements, and close on their perfect home. Contact us to learn more about how we can help you.
