When buying a property with another person or entity, you need to understand which co-ownership structure best suits your needs.
In most provinces and territories, Canadians have two choices: tenants-in-common or joint tenancy.
Property owners in Quebec can only use a tenants-in-common agreement.
What is Tenancy-in-Common?
Tenancy-in-common is a form of co-ownership that allows multiple parties to own shares in a property.
As an example, John and Jane buy a house for $400,000.
Jane pays $300,000 and John pays $100,000.
The tenancy-in-common agreement would state that Jane owns a 75 percent share and John owns a 25 percent share in the property.
However, both parties have equal rights to use and enjoy the entire property.
When one of the parties in the tenancy-in-common agreement dies, their share becomes part of their estate and is directed to a beneficiary through their Will.
Owners can also sell their share at any time without co-owner consent.
If all owners agree to sell simultaneously, expenses and profits are divided according to share percentages.
- You hold an undivided and individual interest in the property.
- You can choose who inherits your share through your Will to guarantee they receive the asset after your death.
- You can sell your share at any time without consent from co-owners.
- Can be difficult to determine share value at the time of death or when sold.
- Can be difficult to sell partial ownership.
- May lead to disputes between inheritors and remaining co-owners.
What is Joint Tenancy?
Joint tenancy equally divides the interest in and the right to possess a piece of property.
Even though a joint tenancy involves more than one person, the law treats them as a single owner.
They each have full ownership and an equal say in whether they will sell or keep the property.
Joint tenancy is the most common choice when buying a property with a partner/spouse.
However, it is becoming increasingly common between parents and children too.
The primary distinction from tenancy-in-common is that joint tenancy creates a “right of survivorship”.
When one of the co-owners dies, their ownership interests in the property ends too.
The deceased owner’s share does not become part of the estate.
Instead, the surviving co-owner becomes the sole owner of the property.
- Easiest solution if you want your spouse/partner to take legal possession of your property when you die.
- No probate fees or creditor claims as property goes directly to the survivor.
- May ensure a smooth transfer of ownership unaffected by Will variations or estate administration.
- Can’t sell the property without consent from both parties.
- Joint tenant can’t leave their portion of the property to a third-party via their Will.
- Property is subject to partner/spousal or creditor claims.
- One party may destroy the joint tenancy through unilateral decisions, creating a tenancy-in-common instead.
Unless the title expressly states owners are joint tenants, regional statutes may take precedent which treat the agreement as tenants-in-common.
Joint Tenants vs Tenants-in-Common
If you die and own property with another party under a joint tenancy, the survivor automatically acquires your interest in the property through “right of survivorship”.
Your interest does not pass through your estate and it can’t be left to a beneficiary you’ve named in your Will.
Under a tenancy-in-common agreement, your share of the property passes to the person you designated in your Will.
If you do not have a Will, the asset will go through probate, incur fees, and the laws of your region will dictate distribution.
If you get married and choose to become joint tenants on the title, both you and your partner/spouse are named as lifetime joint owners on the title of the property.
Neither party can sell the property without consent from the other.
If you die, the survivor takes ownership over your interest in the property.
Conversely, if they die you take ownership over their interest.
Consequently, you can’t leave your portion of the property to another person in your Will.
Tenants-in-common each own a share of the property.
They do not need permission to dispose of their share.
Spouses may choose to become tenants-in-common when they marry by using a percentage split within their agreement.
Even though joint tenants have an equal interest in the property, the asset won’t necessarily divide equally during a divorce.
The courts may decide or you may make an agreement with the other party.
Assets will either be divided by the courts or through an arrangement with your spouse/partner.
However, tenants-in-common agreements do come with additional considerations.
For instance, you may not be able to sell your share or it can be difficult to decide on value.
If you buy a property with your spouse/partner, you will pay tax on any increase in value when you sell it, unless it is your principal residence.
If you bought the property for investment purposes with another party, each joint owner receives an equal part of income earned and their part of any increase in property value.
Each owner should pay their own portion of any taxes payable.
However, since the law considers joint tenants a single owner, you could be liable for the taxes owed by the other party if they don’t pay them.
If you sell your share in a property, you may pay capital gains if the current value is more than what you bought it for.
If the property was your principal residence, the capital gain may be tax-exempt.
Is it Better to Own Assets as Joint Tenants or as Tenants-in-Common?
One form isn’t necessarily better or worse than the other.
It depends on your situation.
Legal advice is definitely recommended to determine which suits you best and to create the correct legal documents.
Nonetheless, joint tenancy tends to make the most sense for couples due to the right of survivorship.
Property rights automatically transfer to the survivor if the other party dies.
However, a tenants-in-common agreement is often suitable for people with children from another marriage, unmarried couples, or when buying with a business partner, friend, or family member.
Frequently Asked Questions
- Can a married couple be tenants-in-common?
Yes, but it is not common as it does not include the right of survivorship. However, parties may prefer it when they want to protect their children’s interests or they have commitments through prior relationships.
- Do tenants-in-common pay inheritance tax?
If you own property with another person as tenants-in-common, on your death your interest in the property becomes part of your estate and transferred according to your Will.
However, if you choose to sell or transfer your share to a co-owner, it is a deemed disposition, or sale, with the sale price based on the fair market value. You will pay capital gains if the value of the property has increased.