There are two ways that you may own a home with someone else. The first is with a: (1) by a “joint tenancy; and the second is (2) a “tenancy in common”.
This article will discuss the difference between the two.
Joint tenancy: we’re all in this together
To understand the general differences between joint tenancy and tenancy in common, let’s use an example. Say Jack and Jill are siblings and are both joint tenants in a house. This means each person technically owns the whole property. However, the key thing to note is that if Jack dies, then Jill automatically owns 100% of the property and can do with it as they please. (Same for if Jill dies).
The benefit of this automatic transfer is that it avoids the lengthy and sometimes expensive process that comes when you give property to someone under your will.
However, there are also pitfalls to joint tenancy: joint tenants lack individual control over the property, meaning that decisions regarding sale need to made jointly. In short, if you want to become a joint tenant, you’d better be in it for the long haul, and trust the person you’re in tenancy with because they will have an equal say in the sale process.
Going on the Jack and Jill example if you are Jack and would like the home to be sold, but Jill will not agree, then you need to go through a court process called a partition and sale for the home to be sold.
Tenancy in common: a more flexible approach
In contrast, a “tenancy in common” is more flexible in that each tenant has their own distinct share of the home that they can deal with as they choose. In this situation, let’s now assume that Jack and Jill are tenants in common, each with a 50% stake in a home. In this case, if Jack was to pass away, his 50% interest in the home wouldn’t automatically go to Jill. Instead, the recipient of Jack’s interest would depend on who is listed in Jack’s will (for example, his children from a prior marriage). If Jack doesn’t have a will, then it may be up to a court-appointed administrator to distribute Jack’s interest in the home.
The benefits of a tenancy in common tend to be the flexibility that it affords, i.e. you can buy and sell your interest in a property as you chose. At the same time, tenancy in common is also useful for parents who want to protect their children’s inheritances from the possible negative outcomes of joint tenancy.
An example helps: imagine Jack has a son from a prior marriage. They become joint tenants to the family cottage. Say Jack dies suddenly, leaving Jill as the sole remaining joint tenant, and therefore, now the 100% owner of the cottage. This seems to be a good outcome, right? But remember that Jill now can do with the property as she pleases, including leaving the cottage to whomever she wants in her will. This means she may be able to cut-out Jack’s son in favour of someone else. Therefore, if Jack wants to be sure that his son has a continuing interest in the home, tenancy in common might be the way to go. As tenants in common, both Jack and Jill would have the right to give their share of the property to whomever they choose in their wills – including Jack’s son – who now can’t be “cut out”. However: one important thing to note is that it is difficult to practically sell a “proportion” of a residential home cottage as prospective buyers will oftentimes have difficulty with the logistical concept of purchasing an “interest” in a home that was once shared amongst close friends or relations.
One last thing: the law around home sales and tenants’ interests in property is very complex. With that in mind, if you’re looking to buy a property or change the legal arrangement among tenants who already own a home, then it’s important to go to a lawyer – Do It Yourself attempts at drafting property sale agreements often lead to some unforeseen and very unwelcome consequences.
Mark Donald also contributed to this article.