Joint Tenancy or Tenants in Common in British Columbia
There are many circumstances where people may consider owning property jointly with one or more persons.
Probably the most common situation is spouses, who may share ownership of the home they live in, or other real estate such as a cottage or vacation property.
Another common situation is aging parents, who may decide to name one of their children as a part owner of their house, or as a joint account holder of their investment and bank accounts, so that the child can help manage the parent’s affairs.
Whatever the reason for considering owning property together, it is important to understand that there are two principal ways that joint ownership can be structured: either as a joint tenancy or as tenants in common. Both forms of ownership can apply to real estate, as well as to personal property like a car, a boat, or a bank account.
Understanding the different benefits that each form of ownership offers can help you choose the approach that best suits your goals and circumstances.
What is a Joint Tenancy?
In a joint tenancy, the owners are considered to each hold an equal, indivisible interest in the whole property. That means that each owner is entitled to an equal share of the proceeds of the property if it gets sold. However, while they own it, they are each considered to be an owner of the entire property, and have equal rights to enjoyment and possession of it, together at the same time.
Any number of people can be joint owners together. For example, a husband and wife may own their house in joint tenancy. Or a group of several siblings may share joint tenancy of a family cottage.
A central feature of joint tenancy, and the reason that many people use it, is something call the right of survivorship. When property is held in joint tenancy and one of the owners dies, the deceased’s share immediately transfers to the remaining owner(s). The property does not become part of the deceased’s estate, and it is not necessary for the property to pass through probate for the transfer to take place.
So, for example, if property is owned in joint tenancy by two people and one passes away, the surviving person becomes the owner of the entire property. If the property is owned in joint tenancy by three people and one passes, the remaining owners will remain in joint tenancy, and each of their shares will increase from a one third interest to a 50 percent interest. The right of survivorship can therefore be an effective way of passing property to a loved one with minimal hassle and expense at the time of transfer.
However, it is important for people entering into a joint tenancy to be aware that adopting this form of co-ownership will have that effect upon death. If, instead, your preference is for your share of the property to go into your estate, so that you can bequeath it to someone else or have it divided between your heirs, then joint tenancy is not appropriate, and you should instead consider a tenancy in common.
Because of the effect of the right of survivorship, joint tenancy is not presumed, and it is necessary for joint owners to use specific language indicating the intention to create a joint tenancy in the document that sets out their interest in the property (Property Law Act, RSBC 1996, c 377, ss. 11(2)). In the absence of specific language, they are presumed to own the property as tenants in common.
What is Tenancy in Common?
Where two or more persons own property as tenants in common, they are still each considered to own the whole property and to be equally entitled to the enjoyment and possession of it. However, their interests in the property are considered to be separate and distinct, and need not be in equal proportions.
So it is possible, for example, for one person to own 70 percent of the property and another person to own 30 percent. If the property is sold, the proceeds would be divided between them on a 70/30 basis. As with joint tenancy, a tenancy in common may involve more than two co-owners. The proportion of each person’s share in the property should ideally be identified in the document that sets up the joint ownership.
A key factor distinguishing a tenancy in common from a joint tenancy is that it does not provide a right of survivorship. Instead, upon the death of one of the co-owners, the deceased’s share of the jointly owned property passes into the deceased’s estate, and is distributed according to the terms of the will, or the rules governing intestate succession. The transfer of ownership will also be subject to probate, including the costs and delays inherent to that process.
In addition, a tenancy in common permits a co-owner to transfer his or her interest in the jointly owned property to another person through a sale or a gift. When this happens, the selling co-owner ceases to have any interest in the property, and the purchaser steps into his or her shoes as a new tenant in common with the other co-owners. This provides greater freedom to co-owners than is the case with a joint tenancy. However, it may also mean that you end up owning property with someone you didn’t expect, or may not even know.
Switching from One Form of Ownership to Another
Regardless of which form of ownership you start out with, it is always possible to make a change. If all owners are in agreement, this can be done by drawing up new documents establishing title and ownership to the property on new terms. Or, if you currently hold property as sole owner but would like to transfer part ownership to someone else (eg, a spouse or child), this can be done by preparing an executing the right documents. Assistance from a property lawyer is probably needed to do this, especially if the asset involved is real estate.
Even without express agreement between co-owners, a joint tenancy can be converted to a tenancy in common through a process called <strong>severance</strong>. Severance can occur where one co-owner takes some unilateral action with respect to the property that is incompatible with joint tenancy, such as mortgaging or selling his or her interest. Note that this can be done without notice or consent of the other joint tenants, who may not even be aware that the nature of their ownership in the property has been altered.
What legal complexities can arise with tenants in common or joint tenancy?
Shared property can lead to many types of legal disagreements. Two common types of situations that can occur with joint tenants or tenants in common are detailed below…
Which is Best for You?
Choosing whether to use a joint tenancy or tenancy in common to structure ownership is a decision that depends on your particular circumstances and objectives.
If you are considering a new purchase, or a change in ownership of some of your assets and would like to discuss your options, give one of our experienced property lawyers a call.