Purchasing a property with another person is a big decision. Therefore, you must ensure you consider the division of ownership before doing so. In property law, two types of ownership include joint tenancy and tenants in common. These terms may sound similar. However, they have different legal and financial effects on the rights of the registered proprietor. This article explains the differences between a joint tenancy and tenants in common.
What is a Joint Tenancy?
When parties own property as joint tenants, this means that:
- all joint tenants have equal ownership and interest in the property; and
- a right of survivorship exists.
What is the Right of Survivorship?
The right of survivorship means that if one of the joint tenants dies, the property will automatically pass to the surviving joint tenant. This happens regardless of any contrary intentions in the will of the deceased owner. Therefore, it is important to consider the way a property is owned when preparing wills and an estate plan. This will help to avoid any disputes arising in the future that could lead to legal hassle.
Who Can Become Joint Tenants?
Commonly, joint tenants are married couples or couples in long-term relationships. These types of relationships typically involve sharing all types of property, including cars and other assets. As a result, a joint tenancy is a good option for them to continue their equal ownership of all property as part of a shared life.
However, this type of property ownership can also be used for other property ownership arrangements where all parties are content with the right of survivorship. Unless you specify otherwise when you are purchasing the property, the law assumes that your purchase is a joint tenancy.
How to End a Joint Tenancy
The joint tenancy will come to an end:
- when the property is sold to a third party;
- when joint tenant A transfers their interest to joint tenant B (meaning joint tenant B owns the property in full and is the sole owner); or
- when one of the joint tenants unilaterally severs the joint tenancy to protect the interest of one of the joint tenants in the case of a relationship breakdown.
A joint tenancy can be severed when one or more of the joint tenants (but not all of the joint tenants) transfer all their interest in the property. This transfer does not affect the shares of a registered joint tenant who is not part of this transfer.
This is done by completing the relevant form through the authoritative government body. For example, in New South Wales, you can find this form at the Land Registry Services. However, all of the owners will need to sign this transfer form.
What Are Tenants in Common?
When parties own property as tenants in common, it means that two or more people co-own a property in defined shares that they can dispose of as they wish. Conversely, tenants in common allow individuals to hold distinct, defined shares in a property, which can be equal or unequal. For example, one person may own 99% of the shares, with the other owning 1%. The precise way that you choose to split the shares is up to you and the other parties.
Who Can Become Tenants in Common?
With its flexibility in defining ownership shares, a tenancy in common caters to scenarios where contributors to property purchase may have different financial capacities.
As a result, ownership as tenants in common is usual for:
- people with adult children entering second marriages;
- people who contribute very different amounts towards the purchase of a property; or
- investors buying property together.
Can Tenants in Common Sell Their Shares in the Property?
Each co-owner can freely sell or bequeath their share, allowing for a more customised and nuanced approach to property ownership. In other words, a tenant in common can sell their shares in the property or give them away in a will. If one of the tenants in common dies, the other tenants in common will still only have their shares as per the original agreement.
Key Takeaways
A joint tenancy is where all joint tenants have equal ownership and interest in the property. In a joint tenancy, a right of survivorship exists. This means that if one of the joint tenants dies, the property will automatically pass to the surviving joint tenant. On the other hand, tenants in common mean that two or more people co-own a property in defined shares that they can dispose of as they wish. The right of survivorship does not apply in the context of tenants in common. As a result, each co-owner can freely sell or bequeath their share, allowing for a more customised and nuanced approach to property ownership.
If you have questions regarding a joint tenancy or tenants in common arrangement, our experienced property lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
When parties own property as joint tenants, all tenants have equal ownership and interest in the property, and a right of survivorship exists.
The right of survivorship means that if one of the joint tenants dies, the property will automatically pass to the surviving joint tenant. This happens regardless of any contrary intentions in the will of the deceased joint tenant.
Tenants in common co-own a property in defined shares (e.g. 40/60) that they can dispose of as they wish. The shares owned by each tenant in common can be equal shares or unequal shares.
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