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09.2.2020

You love your neighbourhood so much that you want to OWN the whole thing.  Or maybe just a little more of it…

If you’re looking to expand your holdings to include the neighbour’s house, there is a somewhat strange law on Ontario’s books that you need to know about.

Have you ever considered owning two properties next to each other?  Perhaps you would like to have your parents or your grown children live next door.  Maybe you want an income property that you can keep an eye on.  Or are you in line to inherit some real estate that is adjacent to something you already own?

If you are thinking of purchasing or otherwise taking title to two or more properties that share a property line, you should be aware of a quirk in Ontario’s Planning Act:  If you take title in exactly the same way to two abutting properties, they will likely merge in title.  This means they become a single property for assessment purposes.  A merger can cause issues down the road when you want to sell one or both properties, since you would need to apply to have them severed unless they are sold together.

When properties merge, they no longer qualify for separate mortgage financing, either.  Any lien placed on one property will cover both of the [formerly separate] parcels of land.

How to Avoid a Merger

There is a simple way to prevent properties from merging, and most real estate lawyers will explain this to their clients.  Take title to side-by-side properties in different names.

We aren’t suggesting using an alias.  The solution is to have different legal owners for each property.  For example, a husband and wife can each take title to one property, if that’s acceptable to both of them.  On paper, John Doe can own 123 Elm St, and Jane Doe can own 125 Elm St, and they won’t merge.  Or John and Jane can own 123 Elm, and Jane alone can own 125 Elm.  As long as John and Jane do not own both properties together, they will remain separate.

In the case of personal or family property, a third owner (parent, child, relative, friend – doesn’t matter!) could be added to one of the title deeds with a very minor share. Even assigning 1% of the value, as a tenant in common, creates a different ownership type for the second parcel of land.

“Solutions” That Don’t Work 

Remember that there are few actual loopholes.  Taking title using a different version of the same person’s name does not fix the problem.  John Doe cannot take title to the house next door as John Henry Doe to avoid merging properties.

Changing the order of the names on the deed or the percentage of the property that belongs to each owner does not prevent merging.  The manner of holding title doesn’t solve the issue, either.  It doesn’t matter if John and Jane own 123 Elm as joint tenants and 125 Elm as tenants in common.  The properties will merge because the owners are the same two individuals.

Things to Discuss With Your Lawyer

When there are multiple owners who need to be on title to properties like this, a potential solution could be to create a corporation to hold one of the properties.  Since a corporation is a separate legal entity, the properties may not merge.  However, it’s important to discuss with your lawyer whether this will work in your situation.

Real estate can also be owned by a trust. Depending on circumstances, this can get complicated, and it is definitely something to work out with a lawyer if separate trusts for the same beneficiary are involved.

One final note of caution about joint tenancy, since this is the most common way for life partners to own the family home:

Even if John and Jane Doe take title carefully when they buy the house next door to their family home, having only Jane’s name on the second property, they could have a problem later on.  Assuming they own 123 Elm as joint tenants, rights of survivorship mean that when John dies, Jane becomes the sole owner of the matrimonial home.  Since she is also alone on title to 125 Elm, she now holds title to both in exactly the same way.   In a case like this, having a third owner of even a very minor share can prevent the properties from merging.

For the Record…

We offer you this information as a matter of fact.  There must be a reason for this law, but we would like to see it changed.  Every so often, we hear rumours that change is coming, and we get a little excited.  For now, though – we are available to help you navigate the idiosyncrasies of the system. We will do our best to help you find the right professionals to guide you through your real estate purchases and sales!

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