Property Ownership Part 2: Joint Tenants vs. Tenants in Common
Although the use of ‘tenants’ can easily be confused with property rental, both joint tenancy and tenancy in common actually refer to a type of shared property ownership. For homeowners, choosing the form of ownership will dictate what happens to the property in the event of one owner passing, and can also affect the amount of tax to be paid at that time.
In part 2 of our property ownership property ownership series, we dive into the differences between joint tenants and tenants in common, to highlight the distinct differences between the two, how they affect your ownership of real estate, and how to decide which one is right for you.
Owning a property as ‘joint tenants’ is most commonly seen in a marriage or relationship, where both parties own equal portions of a property. This form of ownership carries with it the ‘right of survivorship,’ whereby the ownership automatically transfers to the surviving party, in the event that one of the owners passes away.
In B.C., joint tenancy also affords both owners full use and rights over the property. Upon the death of one person ownership of the property transfers to the remaining party, avoiding any probate fees and taxes that would usually be incurred. Similarly, if it happens that there are more than two parties to a joint tenancy agreement, the remaining ‘tenants’ receive the deceased’s interest in equal proportions in the event of one’s passing.
Although the right of survivorship avoids probate fees and capital gains tax, that tax will still have to be paid by the estate at the passing of the last survivor.
Tenants in Common
Unlike joint tenancy, tenancy in common does not come with the right of survivorship. It is more common whereby two or more parties purchase property as an investment, and fractional ownership is more prevalent. Key points of difference in tenancy in common agreements include:
Tenants can choose to own equal portions of a property, or ownership can be divided into any number of ways. For example, one owner may own 75% of the property, and another the remaining 25%. This may be useful in cases where owners make different contributions to the purchase.
Each tenant in common has the right, and freedom, to allocate their share of a property to another person via their will, a property transfer and even a sale. This is because ownership is fractionalised, and can therefore be ‘portioned’ and sold, without selling the entire property.
In the event of death of one or more parties, the transfer of ownership of their property portion will be subject to probate fees. Put simply, this fee is to obtain a grant of probate, which is used by the Land Title office to approve the transfer of ownership of the property, guarantee the validity of the deceased’s will, and conclusively manage any other stipulations/challenges against the estate.
In British Columbia, probate fees generally amount to 1.3-1.4% of the estates value. Whilst this may sound small, with the property price increases of the past decade it can actually be quite a substantial figure.
Typically if you are purchasing property with your spouse or de-facto partner, joint tenancy is the preferred choice. On the other hand, there are a number of reasons that people prefer tenancy in common ownership:
Purchasing property as an investment with people who are not intended to be beneficiaries.
Purchasing property as an investment where the size of each persons investment (and therefore their proportional ownership over the property) varies.
The ability to keep the investment separate and transferable in a will, which is most commonly used to provide for children from a previous marriage.
Joint Tenants vs. Tenants in Common- Which One Is Right for Me?
Without having an in-depth conversation it is difficult to determine which form of joint ownership is best suited to your circumstances.
There are, however, a number of considerations which may affect your decision.
- Owning property as joint tenants will avoid probate fees upon one owners death, however owning property as tenants in common may give you access to a higher first home buyers grant (if/when available). This is because ownership in a tenants in common agreement gives you rights over a proportional amount of the property, and can therefore entitle each owner to the grant.
- If taking advantage of this grant (or simply in the event of a change of circumstances) property titles can be transferred into joint tenancy at a later date. However this may incur a property transfer tax and other fees, which should be taken into consideration.
- Purchasing property with another party does not automatically grant joint tenancy. Rather it must be stated in express terms that a joint tenancy agreement is in place, or it is assumed that the parties to the agreement are tenants in common. This is stipulated in the The Property Law Act in B.C.
- Joint tenancy agreements can be ‘severed’ under a number of circumstances, and revert back to a tenants in common agreement, without the notification, consent, or awareness of those in the agreement.
- Under a joint tenancy agreement, you cannot sell or mortgage the property without the express permission of all people involved. As such, a tenants in common agreement may be better suited to your needs, as you have the right to use and control your portion of the estate.
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