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• 31-Aug-2024

If you are purchasing a property with someone, whether a family member or partner, it is important to understand the legal nuances of property ownership to ensure a desired result. Tenants in Common is a type of ownership which allows the owners flexibility and varied advantages especially in cases where there are multiple owners with varying investment levels and interests involved.    

What Does Tenants in Common mean?

Tenants in Common is a form of property ownership where two or more individuals hold an undivided interest in the property. It should not be confused with joint tenancy because in Common Tenancy each owner can hold a different percentage of ownership. This can be an excellent arrangement in certain cases as each tenant can have a distinct share in the property which they may further sell, transfer, or pass on through inheritance independent of the other tenants.

 

Key features of Tenants in Common

1. Equal or unequal shares: this is important as tenants can hold equal or unequal shares to the property. An example is that one owner may hold a 60% share and another may hold a 40% share.
2. No right of survivorship: this is another feature making it very different from other types of ownership like Joint Tenancy. In Tenants in Common, each owner’s share forms part of their estate. After an owner passes away, this share can be passed on to their heirs based on their will or local laws.
3. Independence in decision making: each tenant has the independence and the right to make decisions about their share of the property. The decision can be related to selling, mortgaging, or leasing their share. They don't need the consent from other tenants.
4. Liabilities and responsibilities: liabilities are generally proportional to the ownership interest in case of Common Tenancy. Each co-owner is responsible for their share of property taxes, maintenance costs, and other expenses related to the property.

 

Advantages and Disadvantages of Tenants in Common

These are some major advantages of common tenancy -

 

1. Flexibility in ownership: Common Tenancy enables owners to hold shares which reflect the investment or contribution of each tenant. This is why it is a good arrangement for business partners when they have different stakes or objectives.
2. Estate planning benefits: this type of ownership offers greater control to the tenants over how their assets will be distributed after death because there is no ‘right of survivorship’.
3. Independence: when in this type of ownership, tenants have the freedom to sell or transfer their shares independently. One will not need consent from the others when managing their financial interests.
4. Investment opportunities:  when investors want to pool resources while being able to have distinct ownership and decision-making powers, this is a very attractive option.

 

There are certain disadvantages as well-

 

1. Potential for disputes or conflicts: if there is no clear agreement amongst the tenants, then conflicts can arise over the sale, leasing, or management of the property.
2. Complexity in decision making: if significant repairs are needed or the entire property needs to be sold, there may be issues if all the tenants don't share the same opinion.
3. Estate complications: when a tenant dies, their shares become a part of their estate. If heirs have disagreements then complex legal issues can arise.
4. Liability issues:  if one co-owner defaults on their share of expenses related to the property or on mortgage payments, other co-owners may be required to cover the costs.

But these disadvantages should not discourage you as our legal team has the expertise to help you avoid all such issues. You should reach out to us if you are planning to buy real estate.

 

Practical scenarios:

1. Investors might want to opt for Tenants in Common to reflect their distinct financial contributions in the property or their expected returns on investment.
2. Parents might want to leave a property to children using this ownership structure to ensure each child's financial needs are catered to fairly.
3. In a business partnership, co-owners of a commercial property may choose this structure to safeguard individual investments while sharing in property use and benefits.

Irrespective of your motivation to choose Tenants in Common, you should get the best legal advice to avoid any problems later or for your heirs when you are not there.

 

Additional information for Tenants in Common

There are some other things that may be helpful in understanding what Tenants in Common mean. Please note that these things can be different based on circumstances like how much mortgage each tenant needs to pay. This is why getting help from legal experts is important to understand how to navigate different scenarios and have a well drafted agreement in place. Let us take a look at some important things now-

1. Creating a Co-Ownership Agreement: For Common Tenancy, it is important to create a co-ownership agreement. The agreement which is drafted has to outline each party’s rights and responsibilities clearly. It can include things like how expenses will be handled, the process for selling a share, and how disputes will be resolved. A well-crafted agreement can prevent potential conflicts which is also important for smooth management of the property.
2. Considerations for Mortgages: If you or another tenant plans to mortgage the property, it is important to note that the lenders often require all tenants in common to be on the mortgage. All owners will be jointly responsible for repaying the loan and each tenant's creditworthiness will be considered by the lenders.
3. Insurance matters: adequate insurance coverage is very important when considering tenants in common. Each owner should ensure that the property is appropriately covered by insurance against risks like theft, fire, or liability. Getting individual life insurance is certainly wise because it can cover the mortgage or other liabilities in the event of a tenant’s death.
4. Exit strategies: this is a really critical thing to consider. Circumstances can change. One or even more tenants may want to sell their share. It is wise to plan and agree in advance as to how shares will be valued or sold, whether to other co-owners or in the open market.

 

Conclusion

If you are considering joint property ownership in Canada, it is important that you understand Tenants in Common and other types of ownership structures prevalent in Canada. Whether you are planning to invest in real estate for personal residence, investment purposes, or estate planning, this legal structure can be a great choice if you are looking for flexibility and autonomy. It is really important to ensure clear guidelines for property management and future transitions to avoid all types of disputes and legal hassles.

 

For expert guidance on property ownership structures and legal implications in Canada, consult with our experienced real estate attorneys. Contact the Houseclosing team today to discuss your specific needs. We ensure that your property interests are protected.