Joint Tenancy vs. Tenants in Common: What Homeowners Should Know

When purchasing a property, there are many factors to consider, from the terms in the Agreement of Purchase and Sale to the timing of the closing and the performance of all due diligence with respect to examining the property itself. However, one thing that people don’t often think about is the fact that they can take ownership of a property in more than one way if multiple people will be going on title; typically, as either joint tenants or tenants in common. Each option has significant implications for the owners down the road that should be considered from the beginning.

What is Joint Tenancy and When Should it Be Used?

Most people, when purchasing a property with someone else, choose to take title as Joint Tenants. For couples, this most often makes sense, since the primary advantage of joint ownership is the right of survivorship. The right of survivorship means that if one owner were to pass away, their interest in the property automatically transfers to the other owner(s) on title. Each owner owns 100% of the property as joint tenants; shares in the property are not apportioned among the various owners in any way.

Sometimes those who own a home in their name alone will consider adding a family member to the title as a joint tenant, for estate planning purposes. This can be helpful in avoiding probate fees and taxes when the homeowner passes away, since the title will transfer by right to the other owner. If the deceased owner is the only name on title, the home must be probated along with other assets of the estate, which will significantly increase fees that must be paid before the proceeds of the estate can be distributed to the beneficiaries.

While this can be a good cost-saving solution, it is wise to carefully consider who you are adding as a joint tenant. Because ownership is fully shared by all parties on title, this also means that all owners are equally vulnerable if the title is compromised in any way. For example, if an elderly parent were to add an adult child to title, and then the child later went into arrears with their income taxes or was ordered to pay significant damages after litigation, the home could be jeopardized.

What is “Tenants in Common” and When Should This be Used?

Tenants in Common is a form of ownership in which multiple people own separate shares the real property, and the shares can be dealt with separately. For example, two people may each own 50% of a cottage property or a home, or one person may own 80% and the other person 20%. The division of ownership can be fully determined by those on title, and no party is entitled by right to another person’s share upon that person’s death.

This form of ownership allows each owner to pass on their share in the property to beneficiaries under their Will if they choose. For example, if two couples purchased a cottage property together, with each person owning a 25% stake in the property, each couple could independently pass on a 50% share in the property to their children upon their death.

Alternatively, each owner could also choose to sell their share during their lifetime. However, finding a buyer for a partial share in a property could prove challenging. Despite the fact that all owners own their share independently from one another, selling the property will often require cooperation and agreement among the parties on title, unless a buyer can be found who is willing to share ownership with the others already on title.

Deciding on the form of ownership, or whether to make a change to an existing form of ownership, is a significant consideration that should be discussed with a lawyer first. Each form of ownership can have major repercussions for the owners down the line, so it is important to carefully consider how best to achieve one’s goals and plan accordingly while being careful to minimize risk in the process.

The lawyers at Prudent Law in Mississauga and Milton represent clients in a number of real estate matters, including the purchase and sale of a property. We provide practical advice and experienced due diligence to minimize risk for our clients in every transaction. For skilled representation by one of our real estate lawyers, please call us at 905-361-9789 or contact us online.

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