Forms of Ownership
These days it is not as simple as just “owning” some real estate. The options seem to grow by the day. Consider the following possibilities for owning land in Canada:
i) Joint tenancy;
iii) Condo ownership;
iv) Tenant shareholder in a corporation;
v) Co-ownership, including fractional ownership; and
vi) Life interest.
i) Joint tenancy
One or more people may own a piece of property, with each one having an identical interest and an equal entitlement to possession of the property. This is what is known as “joint tenancy,” and it is characterized by a very important feature. If any one person dies, the remaining joint tenants automatically take over that person’s interest in the property. In other words, it does not flow to the heirs of the deceased owner. It flows directly to the other co-owners (the joint tenants). This is called the “rule of survivorship,” and it is what distinguishes a joint tenancy from all other forms of ownership. It is possible for creditors of any one joint tenant to make a claim against the property. The joint tenancy can be severed sometimes by simply trying to sell an interest in the joint tenancy without the permission of the others, or by trying to transfer the property to oneself. The advantage of a joint tenancy? It can be a great way to pass property after your death to avoid the need for probate, especially for a home or a cottage.
With a tenancy-in-common, there is no rule of survivorship. If one tenant or co-owner dies, the property share goes to their estate and beneficiaries. Tenants-in-common can have different types of shares in a property and need not necessarily have equal shares. A tenancy-in-common can be a good way of passing on shares in a family cottage through to different generations. Imagine the situation where a father has three children and wants to pass on the family cottage to them, and each of those children want to pass on their share of the cottage to their children at a later date. If the cottage was held as joint tenancy, as each of the children died, the surviving child would have the whole cottage. However, if the children’s interests in the cottage were held as tenants-in-common, as each child died, their share would be passed on to their children, thereby maintaining another generation’s involvement in the family cottage.
iii) Condo ownership
Condo ownership started many years ago in Europe but has rapidly become a feature of North American cities. Condos, lofts and other variations (such as townhouses) are all available. A condo owner gets title or ownership of the individual unit and has sole responsibility for maintaining that unit, but they also acquire an interest in the condo corporation that owns the common elements of the building or community. The condo owners pay a monthly fee to the condo corporation as their share of those expenses to maintain the common elements. Condo ownership can look easy, but the transaction is a little more complicated than a regular house purchase. For example, there are many documents that must be prepared and registered to ensure that the entire project—not just the one condo that may be being purchased—is legitimate under the provincial condominium laws.
iv) Tenant shareholder in a corporation
Cooperatives are popular too, and people who “buy” units in a co-op are actually buying a share in a corporation that owns all the co-op units. They are called “tenant shareholders.” The corporation owns everything—buildings, land, parking lot and amenities. The co-op “owner” owns nothing except their shares in the corporation and has only a right to occupy a particular unit. The cooperative unit holder, or tenant shareholder, cannot sell without the permission of the condo corporation board of directors.
v) Co-ownership, including fractional ownership
A number of people can combine into a form of co-ownership. By doing so, they join together and, perhaps, buy a building with a number of units in it. Instead of splitting the property into individual units that are owned (like a co-op or a condo), the group enters into a contract to share the building. Each receives a long lease in the building for their particular unit. A recent variation of this idea is “fractional ownership,” whereby a piece of property is split into time units. So, for example, a person may buy a number of “units” that translate into a period of weeks, during which the purchaser is entitled to use the property. This is a relatively new development, and some people have found that financial institutions have been a little slow to understand fractional ownership and have been reluctant to advance financing for this type of, more often than not recreational, property.
vi) Life interest
A life interest form of ownership entails giving a person the right to live in, occupy or use a piece of property for as long as they live. When they die, they lose any interest in the property. This type of ownership of real estate can be useful in a situation, for example, where a man wants to let his second wife use a property until her death, at which time it would go to his children from a first marriage. You can see how such an arrangement would keep everyone happy. The surviving second wife is able to use her husband’s property until her death. The children of the man who has passed away know that their inheritance will flow to them after the second wife has passed away. In the interim, she cannot sell the property and she cannot mortgage it, although, in some circumstances (depending on the terms of the life interest), she may be able to rent it or share it with someone else.
The bottom line is there are lots of ways to hold property in Canada. Each has its advantages and disadvantages, particularly in terms of arranging financing. When buying property, make sure that you discuss with your lawyer the appropriate way of having ownership.