PATRICK ROCCA Broker

PATRICK ROCCA Broker

Downsizing Wills, Trusts, Estates

I'm very happy to welcome Harvey J Ash as one of my  legal experts.

Harvey J Ash has been a barrister and solicitor practising in the Province of Ontario since 1977. In addition to practising civil, matrimonial, and estate litigation, Mr. Ash has extensive experience in drafting Wills and Powers of Attorney as well as probating Estates. Mr. Ash was also president of the Canadian Society for the Advancement of Legal Technology in the early 1990s, teaching lawyers the use of technology in their practises as well as making recommendations for bringing technology to the Court system in Ontario. Mr. Ash was an avid tennis player and golfer and now spends his leisure time hiking and taking photographs for which he has won a number of provincial and national awards.

 

JOINT TENANCY vs. TENANTS IN COMMON

When purchasing real property in the name of one or more parties, title can be taken as tenants in common or as joint tenants. 

If there is no indication on the title deed as to how title has been taken, then the default is tenants in common.

What is Tenants in Common?

Tenants in common allows multiple owners to own anywhere from 1% to 99% of the property.

There are three main reasons for taking title as tenants in common:

  1. There is no right of survivorship.
  2.  If the purchaser cannot qualify for a mortgage, a second owner may have to go on title.
  3. The owner may have contributed unequal amounts to the purchase price of the property.

No Right of Survivorship

If one of the tenants in common owners passes away, his/her interest in the property will pass to his/her estate.  It will not pass to the co-owner(s) of the property by right of survivorship.

Qualifying for a Mortgage

When applying for a mortgage, the Bank will determine whether or not you have other assets or sufficient income to qualify for the amount of the mortgage you need to complete the purchase of your property.  In the past, if you did not qualify, the Bank would require someone to guarantee the mortgage.  In recent years, Banks have gotten away from guarantees and now require the added party to actually go on title.  The Bank does not care how much ownership the added party has.  Its only concern is that the combined income of the two or more owners is sufficient to cover the monthly mortgage and other carrying costs.

In many cases, the added owner has not contributed financially to the purchase of the property and, therefore, the true owner does not want the added owner to have any interest in the future value of the property.  In such cases, the added owner has a 1% interest and the true owner has a 99% interest in the property.  Title would be taken as tenants in common so that, should the true owner pass away, the property will not pass to the added owner.  Instead it will pass to the beneficiaries designated by the true owner in his/her last Will and Testament.

Unequal Contributions to the Purchase Price

Where there is more than one owner and they have contributed unequal amounts to the purchase price, title can be taken as tenants in common with each owner having a different interest in the property.  Again, there is no right of survivorship so that when one of the owners passes away, his/her share of the property will pass to to the beneficiaries designated in his/her last Will and Testament.

Example 1:      Two brothers — John and Jim — buy a property together.  The property costs $1 million.  John contributes $750,000 and Jim contributes $250,000.  Therefore, when the property is transferred to them, the title deed will indicate that John owns 75% of the property and Jim owns 25% of the property as tenants in common.

Example 2:      Two brothers — John and Jim — buy a property together.  The property costs $1 million.  John contributes $200,000 and Jim contributes $100,000.  The remainder of the purchase price is financed with a $700,000 mortgage.  When the property is transferred to them, the title deed will indicate that John owns 67% of the property and Jim owns 33% of the property as tenants in common.

Example 3:      Two brothers — John and Jim — John buys a property but needs Jim on title so that John will qualify for a mortgage.  Title is taken as tenants in common with John holding a 99% interest in the property and Jim holding a 1% interest in the property.  It is recommended that the parties sign a separate agreement indicating that should the property be sold or should Jim predecease his brother, the 1% interest reverts to John or that it reverts to John upon John paying an agreed amount to Jim or Jim’s estate for assuming some risk in going on title to the property.

What is Joint Tenancy?

When title to a property is taken as joint tenants and not as tenants in common, all of the owners (could be two or people) own an equal share of the property and there is a right of survivorship.  In other words, if one of the joint tenants dies, his/her share will be divided equally between the surviving joint tenant(s).  Unlike tenants in common, the deceased’s interest in the property will not  be divided as set out in the deceased’s last Will and Testament and will not be subject to Probate Fees.

There are exceptions to this rule, mainly with respect to protecting young children of the deceased or in relation to matrimonial proceedings between the deceased and his ex-spouse.

Breaking the Joint Tenancy

Although title to the property is originally taken in joint names, any of the joint tenant owners can “break” the joint tenancies by unilaterally dealing with their interest in the property.  This is normally done when the joint tenant registers a deed to himself/herself.  This would turn the joint tenancy into tenants in common with each party having an equal interest.  If there are two owners, then each will have a 50% interest.  If there are 3 owners, then each owner will have a one-third interest in the property as tenants in common.

There are two situations when one of the parties will “break” the joint tenancy:

  1. Most matrimonial homes are taken in joint names by the husband and wife.  If they separate, one of the parties will register a deed to himself/herself in order to break the joint tenancy so that, should one of them pass away before signing a separation agreement, the estranged spouse will not inherit by survivorship.
  2. In a business context, where there are two or more owners who own the property as joint tenants have a dispute and no longer want to share the property, by breaking the joint tenancy, the owners ensure that there is no right of survivorship between them.

Taking Title in Joint Tenancy and in Tenants in Common — at same time

In some cases, where there are multiple owners from multiple families, title can be taken in joint tenancy and as tenants in common at the same time.  The easiest way to explain this is by an example.

Two families purchase a property with the intention of renting it out and splitting the profit.  They will take title as tenants in common with each family having a fifty percent interest (or if they contribute different amounts then different percentages).  However, within each of those two interests, the husband and wife in Family #1 can hold title as joint tenants and the husband and wife in Family #2 can also hold title as joint tenants or if they wish, as tenants in common.

Is it Better to Own Assets as Tenants in Common or as Joint Tenants

Holding a property as tenants in common or as joint tenants will depend on a number of factors including, but not limited to, how much each party contributes to the property, the relationship of the parties, how much each party contributes to the ongoing costs, and the purpose of added the extra party to title.

This article highlights the main issues which arise when deciding on the type of ownership.  There are also tax considerations and estate considerations as well as family or partner disputes which could affect your plans and goals and, in some cases, could put your property/investment in jeopardy.

When purchasing a property or deciding whether or not to add someone to title, you should discuss the pros and cons with your lawyer and, if necessary, your accountant so that the decision you make meets your goals.

 

To learn more kindly contact Mr Ash via email or call his office.  |  harveyash@yorklegal.ca  | Tel: (416) 250-0080

This article is for information purposes only and is not meant to provide legal advice to the reader.  Most cases are fact-driven.  If this article raises concerns about a personal matter, you should speak to a lawyer who will provide you with his/her legal opinion based on the facts you present.

 

 

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