Often individuals and companies purchase property together either as a means to secure financing, registered ownership or as a business venture. For various reasons, often financial, one or some of the parties need to relinquish their interest in the property.
For example, Joan and Bob purchased a multiplex as tenants in common with a fifty (50) percent interest each in the property. After a few years, Bob’s financial circumstances change and wants to either sell his share of the property for fair market value to Joan or sell the property to a third party buyer. Joan cannot afford to buy Bob’s share of the property because she just invested in another multiplex however she really wants to keep the property because it is in a great location and the tenants are never a problem. Can Bob compel Joan to sell the property?
In Ontario, the Partition Act R.S.O. 1990 c. P.4. (the “Act”) is the starting point and authority that grants a person the right to partition or sell a property in which they have legal and or equitable interest in. Generally, the law prescribes that a person with an interest in property has a prima facie right to partition or sell their property and the person with the remaining interest is obligated to permit such sale or partition, as long as the intent of compelling such sale or transfer is not vexatious or malicious, in other words the party compelling the sale cannot be acting in bad faith.
As the name of the Act suggests, it is also used to legally divide a parcel of land rather than an order for sale of a property if the right circumstances exist. In fact older cases that judicially considered the Act favoured sale of the land over partioning only when it would be more beneficial to the parties. In my example above, it would be impossible to divide a single free standing multiplex property and in that case a court could only order a sale of the property.
It is important to note that if a property is owned by two or more persons, and a mortgage was given to those persons with the condition that the persons are required on title, transferring the property to the other individuals may be prohibited and consent of the lender may be required. The other consideration is land transfer tax because land transfer tax is generally payable (subject to certain exemptions such as between spouses) when any beneficial ownership is being transferred or conveyed to another person.
When purchasing a property with other parties, good co-ownership and or shareholder agreements can go a long way to ensure that the parties are on the same page with respect to their intentions of ownership and to anticipate any future contingencies that may occur should one or more of the parties need to dispose of their interest for fair market value. Contact the lawyers of Levy Zavet for any of your real estate legal needs.