Groundbreaking New Law Regarding Joint Tenancies

New case law from the Ontario Court of Appeal has provided that a mere “course of dealings” will allow one party to sever a joint tenancy into a tenancy in common.  To learn more, please read below:  an excerpt from the WeirFoulds Trusts and Estates newsletter, published by Thomson Reuters Canada Ltd:

Joint Tenancies

Three recent decisions dealing with the severing of joint tenancies have raised new issues in an area that most of us thought we knew quite well.

First-year Property courses taught us the significant difference between a joint tenancy, where each party has an interest in the whole of the property with a right of survivorship, and tenancy in common, where each owner held a specific interest with no right of survivorship. In order to create a joint tenancy, it has been said that “four unities” must be present: the unity of interest; the unity of title; the unity of time; and the unity of possession. It is well established that if any one unity is not present, the joint tenancy is at an end.

In Ontario, breaking the unity of time by one owner conveying the property to themselves has been used in matrimonial cases to terminate the right of survivorship when the relationship breaks down. The decision in Hansen Estate v. Hansen (2011), 2011 CarswellOnt 15607 (Ont. S.C.J.) takes this concept further by severing a joint tenancy based on the conduct of the owners.

Mr. and Mrs. Hansen were married in 1983, each with children from previous marriages. They jointly owned a cottage and a home. Due to medical issues experienced by Mr. Hansen and the involvement of his children, Mrs. Hansen moved to a seniors’ complex. She did leave the home but intended to continue to assist with her husband. Mr. Hansen, however, saw a lawyer and changed his will, leaving his estate to his children. No instructions were given by Mr. Hansen to sever the joint tenancy of their home. Mrs. Hansen also retained a lawyer who advised Mr. Hansen’s solicitor that they had separated. Steps were then taken to value the home and to divide their assets. Before these matters were settled, Mr. Hansen died. Two of Mr. Hansen’s daughters were named as his Estate Trustees and brought an application seeking a declaration that Mr. Hansen’s estate was entitled to an undivided one-half interest in the home. The application judge dismissed this application as the joint tenancy had not been severed.

The Court of Appeal allowed the appeal (Hansen Estate v. Hansen (2012), 9 R.F.L. (7th) 251, 2012 CarswellOnt 2051, 2012 ONCA 112, 75 E.T.R. (3d) 19, 109 O.R. (3d) 241 (Ont. C.A.)). The Court relied on the three rules established in Williams v. Hensman (1861), 70 E. R. 862 for severing joint tenancies which they summarized as follows:

Rule 1: unilaterally acting on one’s own share, such as selling or encumbering it;

Rule 2: a mutual agreement between the co-owners to sever the joint tenancy;

Rule 3: any course of dealing sufficient to intimate that the interests of all were mutually treated as constituting a tenancy in common.

The applicable rule for this case was Rule 3, the “course of dealing rule”. The Court of Appeal confirmed that what was determinative under this rule is the “expression of the intention by the co-owners as evidenced by their conduct”. Rule 3 will govern where there is no explicit agreement which would trigger Rule 2. Rule 3 requires that the co-owners knew of the other’s position and that all parties treated their interests in the property as no longer jointly held. The Court of Appeal stated that the application judge did not appreciate that the facts, the preparation of a new will, the negotiation of the division of their assets, and the opening of separate bank accounts were sufficient conduct to sever the joint tenancy.

The decision of Su v. Lam (2012), 2012 ONSC 2023, 2012 CarswellOnt 3975 (Ont. S.C.J.), applied Hansen and provided that “the mutual intention of the parties as demonstrated by their conduct, must be assessed” and stated that the intention must be mutual. In this case, the applicant, Mr. Su, was unable to establish that his common-law spouse had, by her conduct, severed the joint tenant in property she held with her husband.

These decisions, together with the decisions of the Supreme Court of Canada in Pecore and Madsen, require estate planners to question their clients carefully about how they hold their property and what they mean by joint tenancy.