In Guide
Tenants in Common vs. Joint Tenancy: Which Ownership Structure is Better for Property Owners?
When owning property, choosing the proper ownership structure is crucial. There are two common options for the proper ownership structure – Tenants in Common and another is Joint Tenancy. Each has advantages and disadvantages, making the decision critical for property owners.
In this article, let us dig into the advantages, disadvantages, and differences between these ownership structures to help you make an informed decision that aligns with your business goals and ownership preference. It is essential to consult with a lawyer to decide the best kind of co-ownership and ensure it is created correctly and efficiently.
What is Joint Tenancy?
Joint Tenancy is when two or more persons wish to own property. Whenever an owner dies, the living parties get total property ownership automatically. This is what is known as the “right of survivorship.”
This implies that the surviving owner will own the property entirely if two people own the property as joint tenants and one passes away. Also, if there are three property owners as joint tenants, and one owner dies, the other two surviving owners become the sole owners of the property.
Unlike Tenants in Common, the ownership percentages cannot be distributed even upon mutual consent among the owners. All the owners must have equal shares. To create a Joint Tenancy, the co-owners must acquire the property at the same time, with the same title, share the same interest, and have an equal right to possess the property.
Advantages Of Joint Tenancy
There are benefits to selecting a Joint Tenancy agreement over a Tenants in Common. For instance, survivorship concerns guarantee that a close individual will not encounter any problems with their ownership rights in the event of their spouse’s demise.
Complete ownership can also provide specific benefits for mortgages and taxes. With equal ownership, decision-making is straightforward, as each owner has the same say.
Disadvantages Of Joint Tenancy
There are disadvantages as well. There is a lack of flexibility as Joint Tenancy doesn’t allow for unequal ownership shares. Also, there is a potential for disputes if co-owners cannot agree on a specific subject, and decision-making can become contentious.
Moreover, the nature of survivorship makes the ownership arrangements a bit challenging if there are more than two owners and one of the owners dies.
Severing Joint Tenancies
A unique feature of a joint tenancy is that one owner can independently sever their shared ownership in the property. This is known as “severing the joint tenancy,” which involves converting the ownership arrangement into a tenants-in-common structure. There are three different ways in which this can be achieved.
The first method involves an owner registering the transfer of their share of the property, either to themselves or someone else, without seeking the consent of the other owner(s).
Secondly, a joint tenancy can be severed through a written agreement between all owners, provided they all agree to the arrangement.
The third approach to severing a joint tenancy is “severance by any course of dealing.” In this case, a thorough examination of the history of ownership is conducted to determine whether, despite the wording on the deed or transfer documents, the behaviour and shared intentions of the owners indicate that they intended to have the property treated as tenants in common. This situation is highly dependent on the specific context and typically requires the input and guidance of a real estate lawyer.
What is Tenancy In Common (TIC)?
Unlike Joint Tenancy, there is no “right of survivorship” in TIC, which means that when one co-owner passes away, their share of the property is typically passed on to their heirs or as specified in their will. The ownership can be of any percentage, and it does not have to be equal among the owners.
For example, two people can own the property in a 65 – 35 split, or three persons can hold in a 40-40-20 split of the property.
With that, let us understand what probate is. Probate is the legal procedure to validate and distribute someone’s financial investments, property and possessions, i.e., estate when deceased, with or without a will.
So, if two co-owners own a property in 50- 50 shares, and one owner dies, their 50% share passes to their estate and does not automatically transfer to the surviving owner. So, the deceased owner’s share of the property will be dealt with as part of the administration of their estate. The individuals listed on the document can ultimately determine how ownership is split, and after someone’s death, surviving owner has a right to another person’s portion.
Advantages Of Tenants In Common
The best advantage of TIC is the ability to distribute different percentages of property ownership. Additionally, the ownership can be transferred upon demise to the descendants or any desired person through a will.
If a tenant dies, their share of the property goes to their estate instead of the other tenant(s). A written record of a deed of trust makes it significantly easier to sell, distribute, and transfer property shares.
Furthermore, it is advantageous for tax refunds as the investments made by each owner are recorded in the document.
Disadvantages Of Tenants In Common
As tenancy in common does not come with a right of survivorship, any tenant who survives may become more exposed to potential changes. For instance, they could divide property ownership with surviving adult children, who could desire to sell or acquire full possession of the property.
A possible consequence of co-ownership is that the shares can be sold and ownership can be changed, which means that there is a chance that a person might end up co-owning an asset with someone they do not have a good relationship with.
Also, as every owner has an undivided stake in the property, conflicts among co-owners can occur regarding the administration of the property.
Legalities to Consider with Tenancy In Common and Joint Tenancy
Taxes and Owning Property Together
When you own a property with someone else, you can choose to be joint tenants or tenants in common. This choice can impact how you’re taxed. When you sell a property in Canada, you have to pay tax on any increase in its value since you bought it. So, each co-owner must pay tax on their share of the property. However, if one joint tenant dies, the other tenant(s) automatically inherit(s) the property. In this case, no tax is due. On the other hand, if a tenant in common dies, their portion of the property goes to their beneficiaries or heirs, which triggers taxes, including capital gains tax.
Planning for Your Estate
Estate Planning means deciding how your things should be divided after death. If you’re concerned about this, choosing to be tenants in common might be better because it allows more flexibility for passing on your share of the property to whoever you choose. If you’re joint tenants and one owner dies, the other owner(s) automatically get their share of the property, which might not be what the deceased owner wanted for their estate.
How to Decide: Making the Right Choice
Now that we understand both ownership structures, let’s look at the table of comparison to determine which is better for landlords, property owners or property managers.
Joint Tenants Vs Tenants In Common
| Aspect | Tenants in Common (TIC) | Joint Tenancy |
|---|---|---|
| Ownership Flexibility | Allows for owners to have different % of shares | Ownership shares are always equal |
| Right of Survivorship | No automatic transfer | Automatic transfer on death |
| Decision-Making | Independent | Collective and equal |
| Probate Avoidance | Potential for probate if not planned | Bypasses probate |
The choice between Tenants in Common and Joint Tenancy largely depends on your specific circumstances and goals. Here are some scenarios to consider:
Choose Tenants in Common if:
- You want flexibility in ownership shares (and/or),
- You are worried about planning your estate (and/or),
- You desire independent decision-making.
Choose Joint Tenancy if:
- You want a simplified ownership transfer (and/or),
- You want to evade the legal process of probate, (and/or),
- You are at ease with equal ownership shares.
Conclusion
In the world of property ownership, there is no one-size-fits-all solution. Both Tenants in Common and Joint Tenancy have their advantages and drawbacks. The choice should align with the specific needs and goals of the landlords or the property owners. It’s recommended to consult with legal and financial professionals to make an informed decision that suits your best interests and situations.
Frequently Asked Questions (FAQs)
Yes, Tenants in Common can have equal ownership shares, but unlike Joint Tenancy, they also have the option for unequal shares.
In Joint Tenancy, the deceased owner's share automatically transfers to the surviving owner(s), bypassing probate.
Yes, it is possible to change the ownership structure from Joint Tenancy to Tenants in Common, but it typically requires the consent of all co-owners.
While not always necessary, having a formal agreement among Tenants in Common can help clarify ownership shares and responsibilities.
Both ownership structures may have tax implications, and it's advisable to consult a tax professional to understand the specific impact on your situation.
Yes, Joint Tenancy can be dissolved, but it typically requires the agreement of all co-owners and a legal process.
