Purchasing a property and taking out a home loan is always a big commitment, regardless of whether you do it solo or with another person. But if you're planning on purchasing a property with someone else, there are certain considerations that must be addressed to ensure that your interests are properly protected. One of these considerations is choosing the right type of ownership for you and your purchasing partner/s.
If you're considering purchasing a property with another person, there are two types of ownership that allow for the division of property: Joint Tenancy and Tenants in Common. While these classifications may sound alike, each one has different legal effects that will impact your right to ownership. But what exactly are these two types of property ownership? And how do you measure the pros and cons of Joint Tenancy vs Tenants in Common so that you can make the right choice for your situation?
What is Joint Tenancy?
Joint Tenancy is a classification of property ownership where the parties on the property title own joint and equal parts of that property. Under this agreement, no party can hold a greater proportion of the property than the other. This is in contrast to Tenants in Common, where parties can nominate different shares in property ownership.
The main distinction between Joint Tenancy and Tenants in Common is that joint tenants automatically obtain the right of survivorship.
So, what is the right of survivorship?
In the case that one of the owners dies, the right of survivorship entitles the surviving tenant or tenants' to ownership of the deceased person's interest in the property. This means that the deceased person's interest in the property will not form part of their estate or be subdivided amongst other beneficiaries under a Will, even if the Will states otherwise.
Spouses and de facto partners are more likely to elect Joint Tenancy because of this right of survivorship.
What are the Benefits of Joint Tenancy?
One of the main benefits of Joint Tenancy is the automatic right of survivorship. It's generally simpler and less expensive to transfer an individual's interest in their property to a joint tenant upon their death in comparison to a tenant in common.
Another potential benefit of Joint Tenancy is that the parties hold equal and joint ownership of the property.
How Do You End Joint Tenancy?
In the event of divorce, separation or changed financial plans, joint tenants may seek severance of their Joint Tenancy. But the method that joint tenants use to end their arrangement will depend on the state in which they are located.
If you sever a Joint Tenancy, you and the other tenant or tenants will automatically become Tenants in Common.
What are Tenants in Common?
Tenants in Common is an arrangement where two or more individuals collectively own a single property and each is entitled to possession of the whole of the property. No tenant is entitled to exclusive possession of any part of the property, such as a certain room, floor, or structure.
Tenants in Common will not necessarily own equal amounts of the property. For example, one tenant could own 70% of the property while the other holds 30%. The percentage shares are commonly used to reflect the amount of money contributed by each tenant.
Unlike Joint Tenants, Tenants in Common do not automatically receive the right of survivorship. If one of the tenants dies, their interest in the property will be distributed according to their Will. If there is no Will, the rules of intestacy will be applied to divide the deceased person's property interest.
Tenants in Common are typically friends or biological relatives rather than spouses or de facto couples.
What are the Benefits of Tenants in Common?
The major benefit of Tenants in Common is that you can elect the proportion of shares in ownership that you and the other tenants have. This offers greater flexibility for individuals looking to invest in property with at least one other person.
Tenants in Common is also an appealing option for individuals who want to distribute their interest in a property amongst other beneficiaries in a Will rather than the other tenant or tenants.
How Do You End Tenants in Common?
As Tenants in Common co-own a property in defined shares, each tenant can sell or transfer their share as they wish. One tenant can also buy out the other tenant or tenants to dissolve the Tenancy in Common in a joint agreement.
| Joint Tenants | Tenants in Common |
| Joint tenants own the property jointly and equally. | Tenants in Common can nominate to own different proportions of the property. These proportions can be equal or unequal. |
| Joint tenants have a 100% stake in the property. | Tenants in Common have a stake that is reflective of their share. For example, a tenant with a 60% share in the property only owns 60% of that property. |
| Joint tenants have an automatic right of survivorship. | Tenants in Common do not have an automatic right of survivorship. |
| Joint tenants cannot sell or transfer their share without consent from the other tenant | Tenants in Common can sell or transfer their share without consent from the other tenant or tenants. |
Have questions? Get in contact!
Still unsure whether Joint Tenancy or Tenancy in Common is right for you? Contact us today to find out more about these two types of property ownership. Or, if you've already decided between these two classifications, explore our Home Loan FAQs for further details regarding our home loan .
