PART 1 - Why leaving the family cottage to “All the children” is NOT a plan.

What many people don’t understand is that by leaving real estate to children or heirs as joint owners creates a legal status among the owners called a “tenancy in common”.

What this status really means is that all of the joint owners' ownership is “concurrent” and subject to real estate laws that are in some instances hundreds of years old. Rarely does this create a good plan or result.

There are several rules that threaten the continued ownership of the family cottage among next generation heirs. One such rule is that each co-owner as a tenant in common has a “right of partition”. This right means that any one owner may force the sale of the cottage even over the objection of the other co-owners, even if those that want to keep the cottage outnumber the one(s) that want to sell it.

Oftentimes the co-owners who want to keep the property offer to buy the heir wanting to sell out. However, even when this is a possibility economically, many situations fall prey to conflicts about coming to an agreement about the value or agreeing on the terms of the purchase.

Next, each tenant in common is deemed to have an “undivided interest” in the cottage. Practically this means each heir as a tenant in common owns a share of the “entire property”. This means that each owner owns their percentage of ownership of every inch, of every foot, of every part of the property and cottage. This then results in each owner being able to be present and use the property at all times. No one owner can prevent another owner from being present on or using the property. There is no ability to use the cottage exclusively. This rarely works.

Another rule is that a co-owner as a tenant in common can transfer huis/her interest to any other person at any time. This can be to a person’s spouse, in-law or a perfect stranger. The potential problems with this rule are obvious.

Yet another rule is that no tenant in common owes rent to any other co-owner. Invision a situation where one co-owner loses their job or encounters financial difficulty and just moves into the cottage so that it is difficult for other co-owners to use, occupy or enjoy the cottage. Even in this circumstance where one co-owner is using the property to the exclusion of other co-owners the occupying co-owner owes no rent to the other owners.

In a somewhat related circumstance, a co-owner can rent out his/her interest in the property and cannot be forced to share the rent with the other co-owners.

There are other rules for tenants in common which I will identify and explain in my next blog, part two.

The good news is that with a minimal amount of planning, current cottage owners can avoid all of the negative consequences that ownership between future heirs as tenants in common can cause that will threaten the family’s continued use and ownership of the family cottage.