Rachel in HomeBuying, Legal, Real Insight
Ed note. Real Insight is a periodic feature decoding some of the many mysteries surrounding HomeBuying.
Any number of factors can influence your decision to purchase property – you are finally ready to move out of the frat house, you and your spouse are buying your first home or perhaps your best friend found the investment opportunity of a lifetime and needs a partner. Whatever the reason for the purchase, how you choose to take title is a key element of the real estate deal to consider. Taking title refers to the ways in which you can own property, and there are different ways.
Sole Ownership is fairly straightforward; you are the only registered owner on title and can deal with the property in pretty much any way you choose.
When two or more people decide to buy property together, there are several ways in which title can be taken. The choice will largely be determined by the relationship of the people who are acquiring the property together - what will happen to the property if one person dies? Who will inherit that person’s interest? How you want these questions answered will depend on the relationship you have with the other purchaser(s). The two most typical ‘multiple owner’ arrangements are where people take title as ‘joint tenants’ or as ‘tenants in common’.
Joint Tenancy means that more that one person has title, or owns the property. Should an owner die, the remaining owner(s)/surviving joint tenant(s) on title will inherit the deceased's interest in the property. This is the most common way that spouses hold title. Here is where we can delve slightly in to the realm of estate planning – if one spouse dies and the other spouse automatically inherits the interest, the value does not have to pass through an estate and will therefore not attract estate tax.
Tenancy in Common means that more than one person has title, owns a proportionate share of the property, and will not inherit the interest of the other owner(s). This is a typical way to own property for people who are not spouses. As an example, my friend and her brother decide to buy a property together. They want to rent the property to tenants and share in the monthly rental income. They both have children, but are not married – should they die, they would want their half interest in the house to go to their children, not to their sibling. Being 'tenants in common' means that should either of them die, that deceased person's interest in the property will become part of the value of the estate and will be dealt with according to that person's will or according to the laws of intestacy. (Taxes, such as estate tax, apply here.) In this case, the tenancy in common would be the best way to register their ownership.
Your circumstances will dictate which method of taking title is best for you. It is also important to keep in mind that in any situation where two or more people own property together, it will be necessary to consider the implications for the parties should a divorce or death occur. Planning ahead will ensure that the property is dealt with in a manner that all owners agree with at the outset.
Rachel Loizos is an associate lawyer at Sotos LLP in Toronto. She practices in the area of real estate law. Email Rachel
