Tenants in Common versus Joint Tenancy
What is the difference?
When buying property it is important to consider the type of ownership that is appropriate for your particular circumstances. If your property is being bought by more than one person, then Joint Tenancy and Tenancy in Common are the two principal types of ownership choices. But what is the difference?
Joint tenancy arises when two or more people are buying a property and the shares are undivided and neither person owns a defined share. This is the most common form of ownership for a husband and wife purchasing a property which will be owned equally. There are no shares shown on the title; therefore if the property is transferred to ‘Thomas Smith and Elizabeth Brown’ without any reference to shares, they are joint tenants.
In the case of a trust buying a property, the trustees must hold the property as joint tenants.
The characteristics of joint tenancy are:
- On the death of one of the owners the other owner/owners automatically become entitled to all of the property. This will happen regardless of any provision the deceased has made for the property in their Will
- Neither owner can mortgage their interest without the agreement of the other owner, and
- There are circumstances where a joint tenancy can be changed to tenants in common. This may be necessary in the event of bankruptcy of one owner or the breakdown of a relationship.
Tenants in common
This type of tenure allows people to own a property jointly, but in equal or unequal shares such as ‘Thomas Smith as to an undivided 1/3 share and Elizabeth Brown as to an undivided 2/3 share’.
Tenants in common is often used when the buyers are in a de facto relationship, are business partners, friends or are family members buying a property together.
The advantage of tenants in common is that a buyer can leave their share in the property under their Will to another person of their choice. Being tenants in common also enables the buyers to have their share recorded on the title to the property based on their financial contribution to the purchase of the property.
The characteristics of tenants in common are:
Any of the owners can transfer or mortgage their share without the knowledge of the other owner/s, and
If one of the owners dies their share will pass automatically to whomever the deceased owner has provided for in their Will.
If you decide to buy a property as tenants in common, it is important for each owner to have a Will in place. Your Will should name who you want your share in the property to transfer upon your death.
Couples (married, de facto or civil union) buying a property together should consider very carefully the implications of what type of ownership they require and also the effects under the Property (Relationships) Act 1976 (PRA). It may be appropriate to enter into a contracting out agreement under the provisions of the PRA or a property sharing agreement to avoid disputes and clarify both parties’ intentions. A property sharing agreement may also state who pays for the outgoings and maintenance, and what is to happen on the sale of the property or if one owner wishes to sell their share in the property.
Deciding on which form of ownership you should choose depends on your personal circumstances.
Confusion often arises about the differences between tenants in common and joint tenancy. It is important that you understand the differences and that you obtain the best professional advice when buying a property together. If you have further questions or would like more information contact Gifford Devine’s friendly team today.