Why would you co-own a home in Ontario through a ‘tenancy in common’?
In Ontario, if you purchase a home with another person or persons, you can hold title in one of two ways. The first is a joint tenancy, and the second is a tenancy in common.
The most common is a joint tenancy, in which all owners own the property in equal parts. If one of the joint tenants dies, subject to interference from other relevant legislation, such as the Ontario Family Law Act (1990), their proportion of ownership transfers to the other joint tenant.
However, a tenancy in common is a different option that I see less frequently than a joint tenancy.
In a tenancy in common, each owner has a divided percentage interest in the ownership of the property, which is also reflected on the title of the property.
For example, Owner 1 can own 49 per cent of the property, and Owner 2 can own 51 per cent. If Owner 1 dies, their 49 per cent interest in the property would pass to their estate and would be dealt with pursuant to the will or intestacy rules applicable to their estate.
Several clients have asked me why co-owners would purchase a property through a tenancy in common over a joint tenancy.
There are a few common arrangements where a tenancy in common could be the preferential ownership structure.
The first is where the co-owners are purchasing the property within the context of a business venture. Pursuant to the Ontario Partition Act(1990), every tenant-in-common has the right to force the partition and sale of their interest in the property for its fair market value.
Through the lens of a business venture, business partners see value in having the legislative right to remove themselves from the joint ownership while simultaneously liquidating the fair market value of the proportion of their ownership in the property.
Further, various business partners can control their ownership proportion and can maintain complete autonomy over their share of the ownership of the property. If one business partner dies, their ownership percentage can bequeath to the beneficiary in their will.
A second common situation is where one purchaser is a first-time homebuyer and eligible for the province’s one-time rebate on Land Transfer Tax for first-time homebuyers. A first-time homebuyer is eligible for a rebate of up to $4,000 province-wide, with the availability of an additional rebate of $4,475 if the property is located in the city of Toronto.
However, given the expense associated with purchasing real estate in the current Ontario market, many first-time homebuyers need the assistance of their parents with such purchase, usually as co-signers on a mortgage offered through a financial institution, some of which will mandate that the parent be a registered owner of the property.
However, a first-time homebuyer who takes a 99 per cent proportion of a tenancy in common with their parent would be eligible for 99 per cent of the First-Time Home Buyers’ rebate(s), whereas a 50 per cent proportion or a joint tenancy would be eligible for 50 per cent of the rebate.
This article was originally published by The Hamilton Spectator.
