Dying as a Co-Owner law: What Happens For Sharing?

Following the acquisition of property by co-owners, one of the most important factors to consider is what happens to the property upon the death of a co-owner. It is critical that clear entry and exit strategies must be in place in order to account for the death or departure if a co-owner dies or leaves the co-ownership arrangement. This can be achieved via provisions in a Will, as well as via provisions in a co-ownership agreement.

Please see our previous blog post “What Happens When a Co-Owner Dies”.  However, the manner of taking title – as a joint tenant or tenant-in-common – significantly affects the co-owners’ freedom to acquire, use or dispose of the a dying co-owner’s title interest.

It is common that provisions of a co-ownership agreement require or permit remaining co-owners to pre-approve any changes to the number of co-owners; similarly, a co-ownership agreement must address the rights of survivorship, and the scope of these rights is directly affected by whether title is held as joint tenants or tenant-in-common.

Where a Joint Tenancy Exists

Under a joint tenancy, where two or more persons own the property together in equal shares, co-owners enjoy a right of survivorship;  that is, upon the death of a co-owner, the surviving co-owner(s) continue to own the property, acquiring the deceased co-owner’s share of title. In other words, when title is held as joint tenants, the ownership interest automatically flows to the remaining co-owner(s).

Furthermore, in a joint tenancy amongst co-owners, the owners do not have the inherent right to transfer their title interest in the property as they please. Rather, co-owners must first agree to transition the joint tenancy into a tenancy-in-common, and then they are free to dispose of their interest accordingly.  Under a tenant-in-common title ownership, co-owners may pass their ownership interest to beneficiaries under the terms of their Will or other agreement.

Where Tenants-in-Common Exist

Often, in a tenant-in-common relationship, co-owners would enter into co-ownership agreements which create pre-conditions concerning permissible transfers of the dying co-owner’s title interest.  For example, where a co-owner dies as a tenant-in-common , the remaining co-owners may wish to limit a “new” co-owner, and may wish to prevent certain persons or entities from gaining an ownership interest (for whatever reason).

Similarly, the co-owners may wish to acquire a share of the ownership interest themselves, or, have a vote in naming a specific beneficiary, or, opt to equip themselves with a right of first refusal in the first place.

These mechanisms are carefully created during the drafting of a Co-Ownership Agreement.

Here is a list of the common provisions a co-ownership agreement may provide for upon the death of a co-owner:

• The manner of exiting the co-ownership arrangement
• the capacity in which new persons or entities enter the arrangement
• the consequences of death of a co-owner
• the consequences of a co-owner’s leaving the arrangement
• calculating the Fair Market Value of a co-owner’s share and/or the entire property
• the sale, resale, or lease of part or all of the ownership shares in the property
• a right of first refusal to purchase a tenant’s share or the ability to approve potential buyers
• blocks to co-owners’ attempts to convey (dispose of) a share in the property, which may require consent of other co-owners
• alternative dispute resolution (otherwise, one tenant must file a partition action in court, which would, in turn, rule on the best way to partition off/separate the tenants’ shares in the property; this is a costly and time consuming process that would tie up the property by subjecting it to a Certificate of Pending Litigation, preventing it from being sold or leased)

 A well-drafted Co-Ownership Agreement will address a wide range of scenarios regarding legal title – joint tenant or tenant-in-common – of the property. An agreement drafted in this manner is  likely allow co-owners to enjoy a smoother transition following the death of a co-owner.

RPL is Ontario’s leading law firm in co-ownership of residential and commercial property. We have helped dozens of co-owners structure their agreements, and close on their perfect home. Contact us to learn more about how we can help you.