People commonly purchase property together. This is a big step and most likely one of the largest financial commitments you will ever make. If you have bought a house you have taken the first step in estate planning without even knowing it.
If two or more people acquire a property together, it can be as tenants in common or as joint tenants. At first glance these terms sound similar. However, they have different legal and financial effects on the rights of the registered proprietors if one party exits the property ownership if they die or sell their share.
What is tenants in common?
Under tenancy in common each proprietor can own equal or unequal shares in a property. For instance Bob owns 50% and Jane owns 50% in their family home as tenants in common.
In another example Harry owns 25%, Diana owns 25% and Bill owns 50% in an investment property.
There are many variations to tenants in common which can be tailored to suit your needs.
A tenant in common can sell their share in the property or give it away in their will. There is no right of survivorship for tenants in common.
Tenants in common may be suitable for:
couples in the early stages of a relationship
people who have no relationship and wish to buy a property together
those who are in a blended family
where there are several parties to the property ownership eg investors buying property together
people who contribute very different amounts towards the purchase of a property.
What is joint tenancy?
Two or more joint tenants hold an undivided equal share of the property.
Joint tenants means that the registered proprietors own the property jointly.
If a joint tenant dies their interest in the property passes to the surviving joint tenant or tenants. This happens regardless of any contrary intentions in the will of the deceased.
This is known as the right of survivorship.
Joint tenancy commonly occurs in a husband and wife situation, but it is possible but not common for corporations to hold land as joint tenants, or for a person and a corporation to hold land as joint tenants.
How do you end joint tenancy?
when the property is sold to a third party
when joint tenant A transfers their interest to joint tenant B
when one of the joint tenants unilaterally severs the joint tenancy (this can be done 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 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.
Rob and Mary own their family home as joint tenants. Mary dies and Tom transfers the property in his name by producing Mary’s death certificate.
Couple in new relationship
John and Jane purchase a new home together and as their relationship is new, they purchase as tenants in common in equal shares (50/50). Soon after John dies in a car accident. The property is not automatically transferred to Jane, instead it is transferred under the terms of John’s will.
Bob and Pat have been married for 10 years. Both have children from previous relationships. They have purchased the property as tenants in common in equal shares. Under their wills Bob and Pat give each other the right to live in the property for as long as they wish. When they both die their children will receive their parent’s share of the property.
Advantages of owing a property as joint tenants
The other joint tenant or tenants takes your interest in the property after you die.
Such transfer can happen quickly and without the need to apply to the Supreme Court for a grant of probate.
To cut out a close family member from your will you can register the land as joint tenants with your other beneficiaries.
Disadvantages of owing property as joint tenants
You cannot gift your interest in the land to anyone under your will. You can only do that if you are the last person to die out of all joint tenants.
In a blended family the land if owned with your second spouse or de facto partner will pass to them automatically. This means that your children may be left with nothing if the land was your only significant asset.
If there are more than two joint tenants, and one dies, the deceased co-owner’s interest is shared between the remaining co-owners. This may have unintended consequences.
Advantages of owing your home as tenants in common
You can leave your share of the land to a beneficiary under your will. Your share will not pass automatically to the other tenants in common if you die. This is useful in blended families.
You can sell your share in the property.
Buying a property with a family member, friend or business partner as tenants in common may help you enter the property market more easily.
Disadvantages of owing your home as tenants in common
If you are in a blended family your spouse could end up holding the property as tenant in common with your children from a previous relationship as the beneficiaries in your will. If everyone does not agree to keep the property, it might become necessary to sell it, leaving your spouse without a home.
If your will is challenged by an aggrieved person by way of a family provision application, then your share of the property is at risk of ending up in the hands of an unintended beneficiary.
There are essential differences between joint tenants and tenants in common.
Which option is the right one for you? Take the time to discover what the right tenancy is for your property. Think about what you want to achieve with your share in the property if you die. You must always consult your accountant or financial advisor about tax and other financial implications of each type of ownership.
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