There are two ways to own property with more than one person: (a) joint tenancy or (b) tenancy in common. There are important distinctions between these two forms of co-ownership that can lead to very different implications for co-owners.
Main Distinctions: In practical terms, the chief distinction between joint tenancy and tenancy in common is the right of survivorship. Only joint tenants can enjoy right of survivorship. This right means that upon the death of one of the joint owners, the surviving joint owner(s) automatically acquires the deceased joint owner’s interest in the property, instead of the interest becoming part of the deceased joint owner’s estate. All joint tenants always own an identical and equal portion of the property and equal rights to the entire property.
On the contrary, if you own property with another person as tenants in common, on your death your interest in the property becomes part of your estate to be passed on according to your will (or pursuant to intestacy laws, if no will exists). Tenants in common can own the property in unequal shares (i.e., in differing percentages). Also, an agreement amongst the tenants in common may be entered into which could override the rights they would normally have under law.
Implications of Joint Tenancy: Joint tenancy is usually considered for estate planning purposes. The key advantage to holding property as joint tenants is that the property does not fall into the deceased joint tenant’s estate, which means no probate should be required to change the registration of title and the property will not be subject to probate fees or the claims of creditors. However, joint tenancy can also cause complications in certain circumstances. Creating a joint tenancy is the same as making an immediate gift, in that you have given up part of the value of and control over the property. The jointly held property may become subject to the claims of the spouse or creditors of the other joint tenant, and cannot be disposed of without the consent of the other joint tenant. There may also be income tax consequences at the time of the transfer and afterwards. Unless the property is your principal residence or the other joint tenant is your spouse, any increase in value in the property from the date you acquired it to the date of the transfer will be immediately taxable to you. After the transfer, the joint owners will each be entitled to an equal part of any income earned from the property and any increase in value of the property. Finally, on the death of the first joint tenant, the estate of the first joint tenant, not the surviving joint tenant, will have to pay tax on any increase in value of the property, other than a principal residence.
Implications of Tenancy in Common: Despite not enjoying the right of survivorship, tenants in common are able to sell, mortgage, or otherwise deal with their interest in the property as they please, without the consent of the other tenants (subject to any existing co-ownership agreement). It is also possible for a tenant in common to apply to the courts to “partition” the property or to sell the entire property and distribute the net proceeds of sale proportionately. Holding property as tenants in common would be appropriate in situations such as purchasing property for investment purposes with persons who are non-relatives (as you may not want the other owners to have your interest upon your death), and passing property onto your children from a past marriage if you have remarried (as the asset would form part of your estate upon death and be dealt with according to your will).
Creating and Ending a Joint Tenancy: Joint tenancy must be intentionally created by the same document and using precise language. This intention and precise language is especially necessary when dealing with real property because the Conveyancing and Law of Property Act creates a presumption in favour of tenancies in common, unless the document’s language explicitly creates a joint tenancy.
To end a joint tenancy before your death, you must “sever” it. Severance means that the joint tenants disrupt the unity of their interests in the property through mutual agreement or unilateral action so that they become tenants in common instead of joint tenants. Severance may also occur by operation of law. If a matrimonial home is owned in joint tenancy by one spouse with a person who is not the other spouse, the Family Law Act provides that the joint tenancy is severed on the death of the owner spouse. If all joint tenants die simultaneously, the Succession Law Reform Act provides that the property will be dealt with as if the joint tenants had been tenants in common.
You should always consult your lawyer about the consequences of each form of property ownership in different situations to be aware of your rights and obligations, and to avoid potential costly implications.