What is Joint Tenancy?
There are plenty of things to consider when buying a home, including the location, the age of the property, and of course, whether the home is within your budget. If you're buying a property with another person or multiple people, you'll also want to consider how you'd like to hold title. Typically, people choose to hold title as either joint tenants, or tenants in common. In this article we'll take a closer look at joint tenancy, its potential impact on home insurance, how joint tenancy differs from tenants in common, and the pros and cons of a joint tenancy agreement.
Joint tenancy is a legal agreement that's noted on a property title document or deed. The agreement lists each owner of the property and gives them equal rights and obligations when it comes to the home. While joint tenancy is typically used by married and common-law couples, friends, relatives, and business associates can also enter into a joint tenancy agreement.
To have a joint tenancy agreement, four conditions (often referred to as unities) must be present:
- Unity of title: each joint tenant owns the same property at the same time.
- Unity of interest: each joint tenant has an identical percentage of interest in the property.
- Unity of possession: each joint tenant has the right to possess the entire property.
- Unity of time: each joint tenant receives their interest in the property at the same time.
Without the presence of all four unities, joint tenancy can't be established.
How does joint tenancy affect home insurance?
When buying a home, your mortgage provider will require you to have home insurance coverage before your closing date. Since one policy is typically easier to manage than two or more, it's generally preferable to have one home insurance policy for all joint tenants.
If you're buying a property as a joint tenant with your spouse or any other property owner(s), each name should be shown on the home insurance policy. This ensures each joint tenant has the same level of protection against potential liability, damage, or loss due to a covered claim. It's important that joint tenants coordinate with their insurance provider to get home insurance coverage that fits their needs.
Questions about joint tenancy and home insurance? A TD Insurance advisor can help you find the right coverage for you.
What's the difference between Joint Tenancy and Tenants in Common?
While joint tenancy and tenants in common share similarities, there are two key differences between these ownership agreements: equal interest, and the right of survivorship. Joint tenants own an equal interest in a property and are equally responsible for making payments to maintain the home. Mortgage payments, home insurance, and property taxes are split evenly between joint tenants. In addition, joint tenancy includes the right of survivorship. That means that ownership of the property automatically transfers to the surviving joint tenant(s) if a joint tenant passes away.
In contrast, tenants in common can each have a different share of ownership – so one tenant may be entitled to a greater percentage of the property than the others. Any profits from renting out the property or costs to maintain the property would be divided according to the ownership percentage of each tenant. Also, tenants in common don't have the right of survivorship. If a tenant in common passes away, their ownership percentage would be given to their descendants as outlined in their will – instead of the remaining property owner(s).
What are the Pros & Cons of Joint Tenancy?
Like any form of property ownership, joint tenancy comes with its own set of advantages and disadvantages. Some benefits of joint tenancy include:
- Right of Survivorship: Ownership transfers directly to the surviving joint tenants listed on the agreement following the death of a joint tenant.
- Simplicity: When purchasing a home, it can be simpler to establish joint tenancy than other legal arrangements due to fewer additional legal formalities.
- Cost Efficiency: Joint tenancy can save costs associated with creating wills and going through probate proceedings due to the seamless transfer of ownership to surviving joint tenants.
On the other hand, some pitfalls of joint tenancy include:
- Lack of Unilateral Control: Joint tenants must make decisions together, which could potentially lead to disagreements. If the joint tenants are husband and wife, this can be especially complicated during a divorce.
- Creditor Claims: If one joint tenant incurs debts, creditors could place a lien on the property, ultimately impacting the investments of the other joint tenants.
It's important to understand the potential advantages and disadvantages of joint tenancy and how they relate to your unique situation prior to entering into an agreement.
Is joint tenancy right for me?
Joint tenancy offers a way for two or more people to equally share in the ownership of a property. It's a popular choice for spouses, common-law partners, and families due to the right of survivorship and seamless transfer of ownership. However, business partners who want to establish a clear framework for property management and transfer may also benefit from a joint tenancy agreement. When buying a home, legal and financial professionals can offer guidance on joint tenancy and whether it could be a good option for you.
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