More on Joint Tenancy and Challenges to the Right of Survivorship on Death

In a February 23 post, we looked at a case involving a bank challenge the right of a spouse to take title to property held with her husband as joint tenants where the estate of the husband was later declared bankrupt.  The Ontario  Court of Appeal has recently looked at another attack on joint tenancy in applying the common law rules of severance in a spousal separation scenario where one spouse died before conclusion of an agreement on property rights.

In this instance, the spouses were joint tenants of matrimonial property.  They had separated and were living apart.  Through counsel, they had commenced negotiations for a division of property.  The husband died before any offers were exchanged or proceedings commenced.  The wife, who was not included in the husband’s new will, claimed sole title to the property by right of survivorship.  That right was challenged by children of the husband’s previous marriage, the beneficiaries under his will.

The case centered on the common-law rules concerning severance of a joint tenancy.  In short those rules state that a joint tenancy will be severed in one of three scenarios.  Firstly, where a party unilaterally acts on one’s own share, such as by selling or encumbering her or his interest.  Secondly, where there is a mutual agreement between the co-owners to sever.  Thirdly, where there is any course of dealing sufficient to intimate that the interests of the co-owners were mutually treated as constituting a tenancy in common.  This case turned on an application of this third rule, known as the “course of dealing” rule. 

The application judge found on the facts that the course of dealing between the spouses was not sufficiently advanced to meet the test under this rule and found that the joint tenancy had not been severed, entitling the wife to sole ownership.  The Court of Appeal disagreed and allowed the appeal.

The Court of Appeal reviewed the test for the course of dealing rule and noted as follows:

• The rule operates in equity to prevent a party from asserting a right of survivorship where doing so would not do justice between the parties;
• The expression of intention by the co-owners as evidenced by their conduct is determinative;
• No explicit agreement need be found between the parties. Mutuality can be inferred from the course of dealing between the parties;
• The test does not require proof of an explicit intention communicated by each owner to the other;
• The co-owners must know of each other’s position and that they treated their respective interests in the property as no longer being held jointly.  Such knowledge can be inferred from communications or conduct;
• Even failed or uncompleted negotiations can lead to a severance because such can show that the notional unity of ownership under a joint tenancy has been abandoned.

Here, the Court of Appeal found that the application judge failed to apply the test properly to the facts.  The Court found that in the months immediately prior to the husband’s death, he and his wife engaged in a course of conduct that involved separating their lives and dividing their assets.  The wife moved out of the matrimonial home and leased her own apartment while the husband remained in the home and took responsibility for it.  The parties retained separate lawyers and commenced negotiations for the division of property.  In reviewing the facts in their totality, the Court found that indeed the parties engaged in a course of dealing whereby each considered the joint tenancy to have been severed.

The Court of Appeal made a few additional interesting remarks.  Firstly, it found that while it is valid law that disposition of property in a will is insufficient to sever a joint tenancy, such can be used as evidence of severance if supported by other reliable evidence.

In addition, based on the Court’s analysis, it appears that the test in Ontario may differ from that in British Columbia.  The Ontario Court reviewed the current British Columbia Court of Appeal position on the course of dealing rule and disagreed with the test applied there.  The BC Court defined the test somewhat differently, finding that in order for severance to be established by a course of dealing, there must be evidence of detrimental reliance as the rule operates primarily as an estoppel.  In other words, in order to establish the severance, a party would have to show that some representation was made by one joint tenant which representation was relied on by the other to his or her detriment.  The Ontario Court disagreed, taking the position that it is not necessary to show detrimental reliance because the rationale for severing the joint tenancy relates to the inappropriateness of the right to survivorship in circumstances where the co-owners have mutually treated their interest in the property is being held in common.  No detriment need be shown.

The Ontario Court also disagreed with the BC position that the rule required the presence of facts that preclude one of the parties from asserting that there was no agreement to sever.  The Ontario Court held that there is no need to show evidence of an agreement, only the mutual intention to no longer treat the property as jointly held.

Hansen Estate v. Hansen