Joint Tenancy vs Common Tenancy: Understanding the Differences

If you are entering the real estate market in Canada and are looking at co-ownership, it is important that you understand the concept of  tenancy in common vs joint tenancy. There are different types of property ownership available amongst which Joint Tenancy and Common Tenancy (also referred to as Tenancy in Common) are the two most prevalent forms of co-ownership. Each of these ownership types carries unique legal and financial implications. You need to understand the key differences because these impact everything from inheritance to day-to-day property management.   

This blog will help you understand the concept and key differences of Tenancy in Common vs Joint Tenancy. Our team of legal experts can help you make an informed decision.

What is Joint Tenancy?

It is important to understand the differences between Joint Tenancy vs Common Tenancy when deciding property co-ownership in Canada. Let us see what Joint Tenancy means. It is a form of property ownership where two or more people hold the title to a property. Each person will have an undivided and equal interest in the entire property. All the owners here are known as joint tenants. They have equal rights to the use and possession of the property, regardless of their individual financial contribution for this property.

Joint Tenancy: How does it work?

A key feature to this type of ownership is the ‘right of survivorship’. This is a legal feature which ensures that if one of the joint tenants dies, their interest in the property will automatically pass on to the surviving joint tenants of this property. This process saves both time and money as it happens outside of the probate process. It is a popular choice for spouses and family members, when co-owning a property, as the transfer of property to the surviving owners tends to be a seamless process.

The process begins with the property deed and four unities are fundamental to the creation of a Joint Tenancy which are-.

1. Unity of time- according to this principle, all co-owners must acquire their ownership rights simultaneously.
2. Unity of title- all joint tenants must acquire their interest from the same deed/legal instrument.
3. Unity of interest- every joint tenant possesses an equal share in the property.
4. Unity of possession- all joint tenants have equal rights to possess and use the entire property.

What is Common Tenancy (Tenancy in Common)?

In the second step to understanding Common Tenancy vs Joint Tenancy, we look at the details of Common Tenancy. This is another popular type of co-ownership where two or more individuals hold title to a property. It is different from Joint Tenancy because Tenancy in Common allows owners to have unequal shares in the property. To understand this, let us look at an example where one owner might own 50% of the property and the other two individuals own 25% each. As you can see, Common Tenancy allows flexibility which is why it is amongst a preferred choice for business partners or investors where they are contributing different amounts of capital for the purchase of the property.

How does Common Tenancy work?

There is no right to survivorship in this form of ownership. Each owner holds a distinct share of the property which can be freely sold, transferred, or bequeathed. This means that upon an owner’s death, their share becomes part of their estate and will be distributed according to their will. If the will has not been made, then it will be distributed according to the laws of intestacy.

Joint Tenancy vs Common Tenancy: Key Differences

Understanding the differences between Common Tenancy vs Joint Tenancy is critical when considering co-ownership of property. The common factor is that both allow multiple individuals to hold title to a property but they have different legal and financial implications. This is why people need to choose wisely and require legal expertise for making an informed decision. Let us see the key differences in both forms of ownership:

1. Right of survivorship- this is a key difference between the two forms of ownership. In Joint Tenancy, when one joint tenant dies the right of survivorship causes their share to automatically pass to the surviving tenants, bypassing probate. On the contrary, Common Tenancy does not include the right of survivorship which means each owner can will their share to someone else.
2. Ownership shares- in Joint Tenancy, ownership is always equal irrespective of their individual financial contribution for the property. On the contrary, Common Tenancy allows individuals to hold unequal shares which may be based on their financial contribution or an agreement.
3. Transfer of ownership- this is another key feature marking a difference between Tenancy in Common and Joint Tenancy. In Joint Tenancy, when one joint tenant dies, the transfer of ownership is automatic. It is transferred to the surviving co-owners. It cannot be passed on to anyone else and lacks the flexibility. It does not require legal intervention. In Common Tenancy, owners have the liberty to will their share to anyone they want. It is flexible in that sense but then there is potential for complications. Co-owners and new owners may not be aligned.
4. Flexibility and control- when you compare Joint Tenancy vs Common Tenancy, you can see that Common Tenancy is more flexible in terms of ownership structure and transfer options. It is more suitable for investors and business partners. Joint Tenancy is rigid but more simple and certain with regards to ownership rights and transfer. This is suitable for family members or close associates.

Legal and Financial Implications

The choice between Joint Tenancy and Common Tenancy has major legal and financial implications. While Joint Tenancy can simplify inheritance, it can expose the property to claims from creditors of any of the joint tenants. When we look at Common Tenancy, one can tailor estate planning and there is flexibility. But there can be complications when a tenant dies and the new owner and other co-owners are not on the same page, when one owner wants to sell their share, or there is no clear agreement on managing the property.

In Canada, there may be certain tax implications as well. For example, the transfer of property through Joint Tenancy might not trigger capital gains tax but selling a share in Common Tenancy might do.

Choosing Between Joint Tenancy and Common Tenancy

When making a choice between Joint Tenancy and Tenancy in Common, the decision has to be based on your specific circumstances, financial goals, and your relationship with your co-owners. If the goal is to simplify and to avoid the complications of probate, then Joint Tenancy is suitable. For someone desiring flexibility and control over their property, Common Tenancy might be the right choice.

It is important to consult with a legal professional who specialises in real estate law. We have the expertise and can help you understand the implications of your choice and how each of these ownership types can fit into your overall estate plan. Let us simplify it for you.

Conclusion

For anyone entering or desirous of entering the real estate market in Canada, understanding the concept of joint tenancy vs common tenancy becomes important. Both these have their advantages and disadvantages. The right choice between these two types of tenancy will depend on your personal situation and goals. We help you make an informed decision so that your property ownership aligns with your long-term plans. Our experts help you with getting the security and flexibility you need when buying a property.