There are two general ways to co-own property in Canada—as joint tenants or as tenants in common. To help you determine which is most appropriate for your situation, this post defines each type of co-ownership, explains the differences between them, and looks at the pros and cons of joint tenancy and common tenancy.
What is joint tenancy?
Joint tenancy is a form of combined property ownership that gives each owner undivided (100%) ownership of the property. Typically, this comes with a right of survivorship, which means that when one owner dies, their ownership interest is absorbed by the surviving joint owner(s).
The property owned under joint tenancy is not a part of a deceased person’s estate because it belongs completely to the surviving joint owners.
What is common tenancy?
Common tenancy is a form of combined property ownership that attributes a specific percentage of ownership to each owner. Ownership shares
do not have to be equal. The only division requirement is that the total ownership percentages add up to 100%.
An owner’s share in a common tenancy arrangement is a part of the owner’s estate and is passed on to the owner’s beneficiaries in the event of the owner’s death.
Joint tenants vs. common tenants: pros and cons
The key differences between joint tenancy and common tenancy are
- The percentage of ownership each owner has, and
- How the shares are handled in the event of an owner’s death.
Which type of co-ownership is best for you? Let’s look closer at the pros and cons of both joint tenancy and common tenancy.
Pros of Joint Tenancy
In many ways, joint tenancy simplifies co-ownership. Because each owner owns 100% of the property, every transaction requires the consent of all the owners. And when an owner dies, their share is automatically absorbed by the other owners.
Cons of Joint Tenancy
The benefit of 100% ownership comes with 100% responsibility for debts, property taxes, mortgage payments, and any other financial obligations. For some owners, this degree of liability is too risky.
Because joint tenancy requires the consent of all owners for every transaction, it can slow the process of each transaction, and sometimes leads to relational conflict.
Because the shares in a joint tenancy are absorbed by the surviving owners when one joint owner dies, joint tenancy can be a disadvantage for an owner’s beneficiaries.
Pros of Common Tenancy
Common tenancy is more affordable for some owners because ownership is divided, so costs are shared respective to ownership percentages. This includes closing costs, legal fees, mortgage payments, and maintenance costs.
Because ownership is divided between owners, control of the property is divided, as well. An owner with a majority share may have the final say on decisions regarding the property, for example.
Each owner has the freedom to sell, borrow against, or deal with their share of the property without the consent of the other owners. Each owner’s share is a part of their estate and is passed on to their beneficiaries when the owner dies.
Cons of Common Tenancy
The potential for conflict is the biggest disadvantage of common tenancy. Co-owners may have differing ideas for managing the property, and when they can’t reach an agreement, it may lead to a buy-out scenario or court intervention.
When a tenant in common dies, probate is inevitable and the deceased owner’s beneficiaries may have to pay legal fees and go through a sometimes lengthy legal process before receiving their inheritance.
What type of property co-ownership is right for you?
Joint tenancy is most commonly used by married couples for ownership of the family home, but it can also work well for parents and children.
Common tenancy is commonly used for business partners, common-law spouses, couples in second marriages, or for family vacation homes intended to pass from one generation to the next.
In this post, we’ve given a very basic overview of joint tenancy vs. common tenancy. There are nuances and complexities involved in each type of property co-ownership, and it’s important not to assume one is best for you simply because it’s common for situations like yours.
For example, if you had children in your first marriage, and you want to co-own property in your second marriage, you must consider your wishes in the event of your death. If you die, do you want your share of ownership in the property to go to your spouse or to your children? Your answer to this question will affect which type of co-ownership you need.
Consulting a lawyer before entering a property co-ownership agreement is highly recommended to ensure your interests are protected. The lawyers at Getz Collins and Associates are ready to assist you in deciding whether joint tenancy or common tenancy is right for you. Contact us today.