Tenants in Common Problems in Ontario: Issues for Owners
When one looks at property ownership in Ontario or other areas in Canada, ‘tenancy in common’ has been seen to be one of the most popular forms of shared ownership. This form of shared ownership enables multiple individuals to own a specific share of a property, where the share may be equal or unequal. The share each individual holds depends on the agreement between the involved parties. This form of ownership has many benefits and flexibility is one of the key features here. But there can be many potential problems with tenants in common in Ontario or elsewhere. Co-owners may need to find their way around different legal, financial, and logistical issues. In this blog, we will look at some of the tenancy in common problems in Ontario, how some of these issues can affect property owners, and what are possible solutions.
Tenants in Common: problems, and potential solutions
- Unequal Ownership and Disagreements
It is clear that in this form of co-ownership, each co-owner can own a different share of the property. A person may own 50% share, another may own 20% share, and a third person may own a 30% share or there may be a different arrangement. This flexibility in owning equal or unequal shares allows people to invest based on their financial ability. But at the same time this can create tension especially pertaining to property related decisions.
Problem: problems in tenancy in common may arise if the owners disagree on the use of the property, repairs or renovation, or the sale of the property. For example, one of the co-owners may want to sell their share while others may want to hold onto their percentage of the property. This can be a conflict creating situation. Other issues may arise due to decision making power being influenced by ownership percentage where a co-owner with a larger percentage holds more influence. In such cases, owners with less share percentage will feel sidelined.
Resolution: the best thing to reduce the risk of disagreements is for the co-owners to draft a co-ownership agreement. This agreement should have details about the decision making processes, division of responsibilities, and the procedure for selling shares. Drafting this agreement is not a legal requirement for tenants in common but doing it can prevent many potential issues.
- Financial Liabilities and Obligations
When you own a property, you are also responsible for various financial aspects like mortgage payments, taxes, and maintenance costs. Under tenancy in common ownership, all co-owners are generally responsible for these financial obligations. Sometimes a co-owner may be unable to or not willing to meet their share of the expenses. In such cases, other co-owners may face serious consequences.
Problem: if one of the co-owners fails to pay their portion of the mortgage, this would lead to a default which would in turn endanger the entire property. In another instance, if there are unpaid property taxes or maintenance costs, this would unduly burden the other owners. This would then lead to disputes and even legal action can be taken by the other owners.
Resolution: it is important that the co-owners establish clear financial expectations in advance to avoid tenancy in common problems in Ontario. Again, a co-ownership agreement can help here where it should outline how all the costs will be divided and what will be recourse if one owner fails to meet their financial obligations. Another solution available to reduce the risk of any co-owner defaulting is to obtain a ‘shared mortgage’ so that all owners are equally responsible for the debt.
- Challenges with Property Sale
One of the main advantages of tenancy in common is that each owner has the right to sell or transfer their share of the property without the consent of the other owners. But this same advantage which provides flexibility can lead to complex issues if one owner wants to sell their share and others don't.
Problem: It can be a complex situation where one owner wants to sell their share of the property. It can be a struggle to find someone interested in buying a partial share in the property as many buyers want to purchase the entire property. At the same time, the remaining co-owners may be uncomfortable with having a new co-owner they don't know and they didn't choose. This can sometimes lead to ‘forced sale disputes’ where one owner may approach the court for a partition sale. This may result in sale of the entire property.
Resolution: it is always in everyone's best interest to have a well drafted ‘right of first refusal’ clause in the co-ownership agreement. This clause gives other co-owners a chance to buy out the selling party before this share is offered to an outside buyer. This can diffuse the situation and prevent any conflicts among the remaining co-owners. This prevents unwanted third parties from becoming a co-owner.
- Inheriting Property and Estate Issues
If you understand tenancy in common, then you know that absence of ‘right of survivorship' is a defining characteristic of this arrangement. When one of the tenants passes away, their share of the property becomes a part of their estate and is passed to their beneficiaries. This may seem a simple situation but even this can lead to legal challenges as sometimes the beneficiaries may not want to maintain ownership of the property.
Problem: when one of the co-owners passes away, their heirs may not be interested in keeping the property or may be financially incapable of doing it. This can lead to disputes amongst the surviving owners especially if the heirs wish to sell their share of the property. A far more complex situation may arise if the deceased tenant's estate goes through probate. Then the process of transferring ownership becomes costly and time consuming for all the parties.
Resolution: to reduce complications, it is important that tenants in common create an estate plan. This plan should clearly outline their intentions for their share of the property. It may also be wise to set up a trust to manage the property after death as this can avoid probate and ensure a smoother transition.
- Legal Disputes and Partition Actions
Sometimes co-owners cannot agree on important decisions such as selling the property or dividing its use. This will lead to legal disputes. A ‘partition action’ can be a useful legal remedy in such cases. In Ontario, for such tenants in common problems, a co-owner has the right to request a partition and sale of the property through the court which forces the sale of the entire property if the co-owners cannot reach an agreement.
Problem: a partition action is tough on the co-owners financially and emotionally. If there is a forced sale of the property, other co-owners may not be happy if they wanted to keep the property. It also puts a major financial strain on all the co-owners because of the expenses related to legal proceedings and court orders.
Resolution: to avoid the emotional and financial strain, co-owners should try to negotiate and settle their disputes amicably. They can also seek mediation. If legal action becomes necessary, then seek help from a reputed real estate legal firm like Houseclosing can help protect your interests.
- Difficulty in Securing Financing
When several people share ownership and financial responsibility, there is an increased risk of default and disputes. This is why lenders are often cautious in financing properties owned by multiple tenants in common.
Problem: tenants in common may face problems in Ontario as banks may be reluctant to provide mortgages or they may have stricter lending criteria for such properties. Also, if one co-owner has poor credit, it can affect the ability of the entire group to secure financing, even if the other owners have good credit scores.
Resolution: to avoid these problems, co-owners should work with a mortgage broker who understands tenancy in common ownership. It can also help if co-owners set up a legal entity such as a corporation to own the property as this can help get financing easily. Owners can also consider joint mortgages.
Also Read: - How much notice to end tenancy
Conclusion
Tenancy in common definitely has many advantages offering flexibility to the owners and making it an attractive option of owning property in Ontario. But it has many challenges as well. These challenges range from disagreements among co-owners to legal disputes, financial issues, and other problems. One must be ready to deal with these problems with tenancy in common in Ontario. But most of these challenges can be mitigated by planning in advance, having clearly drafted agreements in place, and seeking legal advice as it is necessary in most cases. These steps can bring a smoother and more harmonious co-ownership experience.
If you are considering property ownership and want to have tenants in common arrangement, or you are already a part of such arrangement, understanding the common issues and taking proactive steps can prevent conflicts and protect your interests. Choose Houseclosing for legal advice related to all potential issues and remedial measures. We have the best experts and look forward to protecting your interests.
