Severance of a Joint Tenancy by Course of Dealing
Whether a property is held as a joint tenancy or as a tenancy in common can have a significant impact on the overall value of an estate.
Where a property is held as a joint tenancy, and one of the owners dies, his or her interest passes to the surviving owner by right of survivorship.
Where a property is held as tenants in common, the deceased owner’s share of the property passes to his or her beneficiaries pursuant to the terms of his or her Will or, where the deceased dies without a Will, in accordance with the laws governing an intestacy in Ontario.
The severance of a joint tenancy can often become a disputed issue in context of estate litigation.
A joint tenancy can be severed and converted to a tenancy in common in one of three ways:
- one owner unilaterally acting on his or her own share, such as selling, transferring or encumbering it;
- a mutual agreement between the co-owners; or
- any course of dealing sufficient to suggest that the interests of the joint tenants were mutually treated as constituting a tenancy in common.
Severance by course of dealing can occur without the knowledge of the registered joint owners and is particularly relevant in the context of property held by spouses who had separated, or were in the process of separating, prior to death.
The legal test for severance by course of conduct is set out in the Ontario Court of Appeal decision in Hansen Estate v. Hansen, 2012 ONCA 112 at para 7 as “whether the parties indented to mutually treat their interest in the property as constituting a tenancy in common.” It operates so as to prevent a party from asserting a right of survivorship where doing so would not do justice between the parties.
The test does not require proof of an explicit intention or communication regarding severance of a joint tenancy, rather the party asserting severance must prove that the owners by their conduct treated their respective interest in the property as no longer being held jointly.
The cases in which severance by course of conduct has been successfully upheld generally involve couples who have taken formal steps to separate their interests. For example, where one spouse has moved out of the property, both spouses have retained lawyers in connection with their separation, a valuation of the property has been sought and/or one spouse has made an offer to purchase the other spouse’s share of the property.
However, each case will turn on its own facts. In Jurevicius v. Jurevicius, 2011 ONSC 696, the Court found that the mere fact of separation was insufficient to establish severance, and in, Gorecki Estate v. Gorecki, 2015 ONCA 845, the Court found that while the relationship between the parties was falling apart, it had not yet reached a point at which they formed a mutual intention to treat their interests in the property as a tenancy in common.
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