KNOW the LAW: when INVEST with Partners or Family members

It’s not infrequent that 2 brothers or sisters, a child and a parent get together and make a joint investment in a property.  Often they invest as “joint tenants” whereas if it were 2 or more friends partnering to invest they’d invest as “tenants in common”.  What is the difference?

As joint tenants, if one dies, the other person gets their share.  That is why it is only common amongst spouses or families.  Whereas with ownership as tenants in common, when one dies, their share does not go to the other partner(s) but to their estate.

The right of survivorship is the biggest benefit of registering as joint tenants.  By definition, a joint tenancy can only be created if the Title is granted from the same deed/will at the same Time and their is undivided possession and equal interest in the property.

For example, Joe and Sally purchased a house on Aug 1st.  They signed a purchase and sale agreement and the lawyer closed the deal on Oct 1st, transferring title to both from the same deed and at the same time.  In addition, both have undivided possession of the entire house (the whole house belongs to them both) and each has equal interest  (Joe does not have 75% share and Sally 25%).

If any of these four “unities” (Time, Title, Possession, Interest) are missing or cease to exist during joint tenancy then the owners will automatically become tenants in common.  Also, a joint tenancy can only be created if a “clear” intention exists to create it.  It must be requested, otherwise  a tenancy in common is automatically created.

Brothers Bob and Sam are single and think of investing in a rental house.  They agree if one were to die the other would get full ownership of the house.  They register as joint tenants.  A year later, Sam falls in love and marries Kim.  Sam decides to move into the rental property with Kim.  Bob doesn’t mind, after all its his brother.  Three years later in a car accident Bob dies.

As joint tenants, Sam now takes full ownership of the rental property as the brothers had agreed to when registering as joint tenants.

What would have happened if Sam had died and not Bob?

One might think that Bob would get ownership of the house.  However, if that were to happen then what would Kim get?  The law has taken this into consideration and has created an exception and in this case “The Family Law Act” would step in and sever the joint tenancy immediately upon Sam’s death and create a tenancy in common.  In this way, Kim’s spousal interests are protected by having Sam’s share go to his estate and to Kim.  Kim would also have rights to stay in the home for a reasonable period of time until it is sold or either Kim or Bob buys out the other.

What could have Bob done to ensure the joint tenancy survived?

He should’ve insisted that Sam and Kim find a different place to live.

What difference, if any, would it have made if Sam and Kim moved out of the rental property and purchased a new home?

The rental property would no longer have the designation of a “matrimonial home” and thus be unaffected.  So if Sam dies, Bob would get full ownership and Kim would not have any stake as a non-owner.

1.  Bob sells his interests to Sam in the rental home leaving Sam sole owner.  A year later, Sam decides to sell.  Do we need non-owner Kim’s consent?

2.  What if Sam and Kim marriage turns sour and Sam tells  Kim to get out of “his” house… can he kick her out?

3.  What is Sam buys another house jointly with Kim and a few years later they separate… does Kim have any stake in the rental house?

I look forward to your answers…

Every day Realtors create legally binding contracts (Listing Agreement, Agreement of Purchase and Sale).  It is very important to have the proper parties sign the documentations so that litigation is minimized and buyers and sellers are unaffected in the purchase and sale of a house.

It is good practice to talk to a Lawyer as governments change statutes that affect property rights.

Vijay Gandhi, Remax Dynasty-Sales Representative – Cell: 647-67-6338 E-mail: vgandhi@remax.net

Disclaimer: My blog should not be considered legal advice and replace the need to seek professional advice from a Solicitor.

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