Decades ago, co-ownership was a lesser-known concept and a path that few buyers took. Fast forward to today, and co-ownership has been growing steadily and is emerging as a popular route to homeownership. Generally, there are two main ways to share ownership of an MLS listing in Toronto: joint tenancy and tenancy in common. In joint tenancy, two or more people each own an equal part of the property. By contrast, a tenancy in common is when people share ownership of a property, but not equally.
These are just one of the many differences between these two ownership options. Beyond this, there are several key details you should know if you’re thinking about co-owning a property in Toronto.
The Key Ways Joint Tenancy Differs From Tenancy in Common
- How Ownership Shares Are Divided
The first difference between joint tenancy and tenancy in common comes down to ownership shares. In other words, how much of the property each co-owner actually owns.
Let’s use an example to understand this better. Suppose three friends, Alex, Priya, and Sam, buy a house in Toronto for $900,000. They put down a minimum down payment of $65,000. But their contributions are different. Alex puts in $28,600, Priya contributes $21,450, and Sam chips in $14,950.
If they choose joint tenancy, the law will treat each of them as owning an equal share of the home. This share is irrespective of their actual contributions. That means although Alex paid 44%, Priya 33%, and Sam 23% of the down payment, each of them legally owns one-third of the property. Their contributions don’t change the ownership percentages.
On the other hand, tenancy in common is more flexible. Here, ownership shares can match actual contributions or any other arrangement the owners agree on. Using the same example, based on the down payment contribution, Alex would own 44% of the home, Priya 33% and Sam 23%.
- Right of Survivorship
Another major difference is something called the right of survivorship. This right becomes important if a co-owner of the house passes away.
In joint tenancy, this right is automatic. Let’s go back to our earlier example. In the joint tenancy case, Alex, Priya, and Sam own one-third of the house. In this case, if Alex sadly passes away, his one-third share in the house won’t go to his heirs or family. Instead, under the right of survivorship, it automatically transfers to the remaining owners, Priya and Sam. Each of them would then gain an additional one-sixth of the property.
The benefit of the right of survivorship is that it avoids probate and legal delays. The surviving owners gain full control of the property immediately.
On the other hand, tenancy in common does not come with this automatic right. If Alex owns 44% of the property and passes away, his share becomes part of his estate. It is then distributed according to his will, or if he doesn’t have a will, Ontario’s intestacy laws will decide who inherits it.
- Selling or Transferring a Share
In joint tenancy, all co-owners must agree before one person can sell or transfer their share on the MLS listing in Toronto. In other words, no one can do anything to their share without everyone else saying yes to this change. This rule protects all owners by preventing unexpected new co-owners from entering the property.
However, if a co-owner does transfer their share without agreement, the joint tenancy is automatically severed. From that point, property ownership changes from joint tenancy into a tenancy in common. Once this happens, you’ll lose the right of survivorship. Future responsibilities and ownership share will also be different.
In contrast, tenancy in common allows each owner to sell, transfer, or mortgage their portion independently. You don’t need approval from the other owners.
- Tax Implications
How you hold a property also affects your tax obligations. Let’s break this down:
- Capital Gains
In Ontario, when you sell a property that has increased in value, you may owe tax on the capital gains. In a joint tenancy, the sale profits (capital gain) are split equally, just like the ownership shares. Hence, each owner pays an equal share of the capital gains tax. In tenancy in common, however, capital gains are split according to ownership shares.
- Land Transfer Tax
When you buy a property in Ontario, you pay land transfer tax (LTT) based on the property’s price. In Toronto, there’s also an additional municipal LTT. Thankfully, first-time homebuyers may qualify for a Land Transfer Tax Rebate if all co-owners meet the requirements. However, if even one owner has previously owned a house in Toronto or elsewhere, the rebate could be reduced or lost.
- Estate Administration Tax (Probate)
Joint tenancy can help avoid probate fees. That’s because the property automatically passes to the surviving co-owner. Hence, the deceased’s share usually bypasses estate administration.
However, tenancy in common doesn’t have this advantage. The deceased owner’s share goes through probate, and estate administration tax applies.
- Creditor Risks
The type of co-ownership can affect how creditors can legally access the property. In joint tenancy, if one co-owner has debt or faces a legal judgment, creditors could place a lien on the property. Thus, even if you personally haven’t incurred debt, your co-owner’s financial problems could affect your house.
With tenancy in common, however, each owner has a distinct, divisible share. Hence, creditors can only go after the specific share of the co-owner in debt. This can keep your portion of the property safe from someone else’s financial trouble.
- Mortgage and Other Financial Responsibilities
When you buy a house with someone else, understanding who pays what is crucial. In joint tenancy, all co-owners share equal responsibility for the mortgage. Let’s go back to our example with Alex, Priya, and Sam. Suppose they take out a mortgage with a 25-year amortization period at a 4% interest rate. According to a mortgage calculator, their total monthly payment for the $900,000 home comes to $4,584.
In a joint tenancy, this amount is divided equally among the three co-owners. That means each person, Alex, Priya, and Sam, pays $1,528 per month.
But what if one co-owner can’t pay their share? Imagine Priya is unable to contribute her $1,528 in a particular month. In this case, Alex and Sam must cover her portion to prevent the mortgage from going into default.
Other homeownership costs, such as property taxes, are also split equally among all co-owners. This applies to property taxes, home insurance, utilities, and other expenses.
We calculated the mortgage payments, property taxes, utilities, and insurance on the Toronto house using a mortgage calculator.
Now, let’s consider tenancy in common. Here, ownership shares reflect the actual contribution each person made to the purchase. Consequently, financial responsibilities follow the same pattern. Using the same $4,584 monthly mortgage example, Alex, Priya and Sam would pay amounts proportional to their ownership shares –
- Alex – $2,016.96 (44%)
- Priya – $1,512.72 (33%)
- Sam – $1,054.32 (23%)
If Priya misses her payment, Alex and Sam might temporarily cover her share. But they can also take legal action to recover their portion. In that case, creditors will target only Priya’s share of the property. The other co-owners’ portion will stay safe. Regarding other expenses as well, each person pays for the portion they actually own in tenancy in common.
Joint Tenancy or Tenancy in Common: Which One Should You Pick?
If you’re buying a house with someone you trust completely, joint tenancy can make life simpler. For instance, if you’re buying with a spouse, close friend, or family member. In this case, you share equal ownership. Additionally, if one owner dies, the other automatically inherits the property, bypassing the probate process.
However, if you’re partnering with friends or siblings, pick tenancy in common. This also applies if you’re buying with anyone whose financial situation or plans may differ from yours. This option allows each person to hold a distinct share, giving control over their portion. But if co-owning doesn’t appeal or feels risky, you have other options. You can look for affordable condos or houses in budget-friendly neighbourhoods in Toronto.
The key is to pick a homeownership path that fits your finances, lifestyle, and long-term goals.
