Source: MoneySense.ca – by Romana King
Consider alternative ownership options when buying a home
As housing affordability recedes in the rearview mirror of Canada’s fast moving real estate market, it’s time to look at different housing ownership options.
The term freehold is synonymous with ownership of a property. In a freehold interest, the owner has full use and control of the land and buildings on the property, subject to governmental rights as well as local by-laws.
When purchasing a leasehold interest, you are really purchasing the rights and ownership of a building or structure but not the rights or ownership of the land the property sits on. Homes built on Native Canadian or Crown land fall into this categories. Examples of this type of ownership can be found scattered throughout the Greater Vancouver Area.
While leasehold ownership can make owning your home far more affordable there are a number of factors to consider. For instance, you’ll want to determine whether or not the land-owner will more than likely renew the lease once the term expires? Also, if you do decide to vacate the land, does the contract allow you to move the building or must you relinquish all rights? You’ll also want to pay attention to whether or not the lease is fixed or variable. Just like mortgages, a fixed lease means the terms are locked in for the duration for the lease. So, if a leasehold is for 99 years, you or your heirs will not have to go through a review or renewal of the lease until 99 years have passed. A variable lease, on the other hand, will have periodic reviews within the leasehold agreement—the standards is once every 33 years on a 99-year lease.
You can buy a new leasehold contract or you can assume ownership of an existing one. For instance, a seller could list their 99-year leasehold for sale after living in the home for 20 years. This means you would be buying the lease and allowed to live in the home for the remaining 79 years.
Keep in mind, though, that it’s harder to find a lender that will offer a mortgage for this type of ownership—although, credit unions have historically offered favourable rates for leasehold interests.
If you decide to purchase a property with friends or family this is informal co-ownership—an agreement of responsibility and use must be agreed upon by all those involved. Or you can buy into a co-operative, which is a formalized co-ownership of a building where you have exclusive use and rights to a specific unit.
If you are buying with family and friends you’ll want to pay attention to the type of ownership, and the are two basic types: joint tenancy and tenancy in common.
Joint tenancy is common for anyone purchasing with a spouse or partner. In this type of tenancy, when one of you dies the other becomes the sole owner. That’s because the entire ownership transfers to the surviving owner, without having to go through probate, under joint tenancy. That means neither owner can leave their portion of the property to a third party in their will.
Tenancy in common, however, is where each owner may have equal or different ownership shares in the property. As a result, one party may sell her share without the permission of others. In this type of co-ownership, there can be more than two owners, and the owners may sell their portion of the property to anyone, unless stipulations or restrictions are built into the ownership contract.