So you and your friend have finally decided to invest in a property together. But before you dive into the world of property investment, it’s important to understand the different ownership options available to you. The two most common types are joint tenancy and tenancy in common. In joint tenancy, you and your friend would have equal ownership of the property and the right of survivorship, meaning that if one of you were to pass away, the other person would inherit their share. On the other hand, tenancy in common allows you to have unequal ownership shares and does not include the right of survivorship. Each option has its pros and cons, so let’s take a closer look at joint tenancy and tenancy in common to help you make a well-informed decision.
What is Joint Tenancy?
Joint tenancy is a type of ownership where multiple individuals, known as joint tenants, hold equal shares of a property. This means that each owner has an undivided interest in the entire property, rather than owning specific portions of it. Joint tenancy is commonly used by married couples or family members who want to have an equal stake in a property.
Definition
In joint tenancy, each owner has an equal right to possess and use the entire property. This means that no one joint tenant can exclude another joint tenant from entering or using the property. The ownership rights are typically spelled out in a legal agreement or deed, which outlines the rights and responsibilities of each joint tenant.
Ownership
In joint tenancy, each owner has an equal share of the property. For example, if there are three joint tenants, each one would hold a one-third interest in the property. This shared ownership allows all joint tenants to have equal control and decision-making power when it comes to the property.
Right of Survivorship
One key characteristic of joint tenancy is the right of survivorship. This means that if one joint tenant passes away, their share automatically transfers to the surviving joint tenants. In other words, the deceased joint tenant’s share does not pass through their estate or go to their heirs. Instead, the surviving joint tenants absorb the deceased tenant’s share, becoming the sole owners of the property.
What is Tenancy in Common?
Tenancy in common is another type of ownership where multiple individuals hold shares in a property. However, unlike joint tenancy, the shares in a tenancy in common arrangement can be unequal. Each owner in a tenancy in common retains the right to possess and use a specific portion of the property, which may or may not be equal to the shares owned by others.
Definition
Tenancy in common is a form of ownership where multiple individuals hold separate and distinct shares in a property. Unlike joint tenancy, there is no requirement for equal ownership or shared possession of the entire property. Instead, each tenant in common has the right to use and enjoy a specific portion of the property, which may be divided into defined boundaries.
Ownership
In a tenancy in common arrangement, each owner holds a separate and distinct share of the property. These shares can be unequal, meaning that one owner may have a larger percentage of ownership compared to others. The ownership rights and responsibilities are typically outlined in a legal agreement or deed, which specifies the size and boundaries of each tenant in common’s share.
No Right of Survivorship
Unlike joint tenancy, tenancy in common does not come with the right of survivorship. If one tenant in common passes away, their share of the property does not automatically transfer to the other tenants. Instead, it becomes part of the deceased tenant’s estate and is distributed according to their will or the laws of intestacy if no will exists.
Key Differences between Joint Tenancy and Tenancy in Common
While both joint tenancy and tenancy in common involve multiple individuals owning a property, there are several key differences between the two arrangements.
Ownership
In joint tenancy, each owner holds an equal share of the property, whereas in tenancy in common, the shares can be unequal. Joint tenancy requires shared possession of the entire property, while tenancy in common allows for each tenant to have a distinct portion of the property.
Right of Survivorship
Joint tenancy includes the right of survivorship, meaning that the shares of a deceased joint tenant automatically transfer to the surviving joint tenants. Tenancy in common does not have the right of survivorship, and the shares of a deceased tenant in common pass through their estate.
Transfer of Interest
In joint tenancy, an owner cannot transfer their interest in the property without the consent of the other joint tenants. However, in tenancy in common, each tenant can freely transfer or sell their share of the property without needing permission from the other tenants unless the agreement in place says otherwise.
Partition
Partition is the legal process of dividing a jointly owned property into separate portions. In joint tenancy, partition is generally not an option, as joint tenants are meant to hold the property together. However, in tenancy in common, any tenant has the right to request a partition, which may result in the physical division of the property or a sale to one or more co-owners.
Benefits and Drawbacks of Joint Tenancy
Joint tenancy has its advantages and disadvantages, depending on your specific circumstances.
Advantages
One of the main benefits of joint tenancy is the right of survivorship. This means that if one joint tenant passes away, their share automatically transfers to the surviving joint tenants without going through probate. This can simplify the transfer of ownership and avoid potential disputes among heirs.
Joint tenancy also allows for equal ownership and decision-making power among joint tenants. This can be beneficial for married couples or family members who want to share ownership of a property and have an equal say in its use and management.
Disadvantages
One disadvantage of joint tenancy is that it requires the consent of all joint tenants for any changes or transfers of ownership. This can make it more difficult to sell or mortgage the property if one joint tenant does not agree.
Another drawback is the potential loss of control over the property. Since joint tenants have equal rights, one joint tenant can’t make decisions or changes without the agreement of the other joint tenants. This can lead to conflicts or disagreements over how the property should be used or managed.
Benefits and Drawbacks of Tenancy in Common
Tenancy in common also has its own set of advantages and disadvantages.
Advantages
One advantage of tenancy in common is the flexibility it provides in terms of ownership shares. Unlike joint tenancy, tenancy in common allows for unequal shares, which can be helpful when co-owners contribute different amounts of capital or have different investment goals.
Tenancy in common also allows for more individual control over each co-owner’s share. Each tenant in common can use and manage their portion of the property as they see fit, without needing the approval of the other tenants. This can be advantageous in situations where co-owners have different needs or preferences for the property.
Disadvantages
One drawback of tenancy in common is the lack of automatic inheritance. In the event of a tenant in common’s death, their share does not automatically pass to the other co-owners. This can result in complications and potential disputes if there is no clear plan in place for the transfer of ownership.
Another disadvantage is the potential for conflicts regarding the use or management of the property. Since each tenant in common has the right to possess and use their portion of the property, disagreements may arise if co-owners have different ideas or expectations regarding maintenance, improvements, or usage.
Instances where Joint Tenancy is Preferred
Joint tenancy is often preferred in certain circumstances.
Married Couples
For married couples, joint tenancy can provide a convenient way to hold property together and ensure that both spouses have an equal claim to the property. The right of survivorship can also simplify the transfer of ownership in the event of one spouse’s death, without the need for probate.
Estate Planning
Joint tenancy can also be beneficial for estate planning purposes. By holding property as joint tenants, individuals can pass their share directly to the surviving joint tenants, bypassing the probate process. This can help avoid delays and costs associated with probate and ensure a smoother transfer of assets to beneficiaries.
Instances where Tenancy in Common is Preferred
Tenancy in common may be more appropriate in certain situations.
Business Partnerships
In a business partnership, tenancy in common can be a preferable option. Each partner can hold a distinct share of the property that reflects their investment or ownership stake in the business. This arrangement allows for more flexibility in terms of ownership percentages and facilitates the transfer of shares if a partner decides to leave the partnership.
Unrelated Co-Owners
When multiple individuals who are not related or married want to co-own a property, tenancy in common may be a better choice. This allows each co-owner to have a specific portion of the property and the freedom to use and manage their share independently. It also provides a clear framework for ownership and transfer of shares.
How to Create Joint Tenancy or Tenancy in Common
Creating joint tenancy or tenancy in common requires specific steps.
Agreement
The first step is to create a legal agreement that clearly outlines the terms of the ownership arrangement. This agreement should specify whether the owners intend to hold the property as joint tenants or tenants in common, along with the respective ownership shares of each party.
Title Documentation
Next, the property’s title documentation must be updated to reflect the joint tenancy or tenancy in common ownership. This typically involves filing the appropriate legal documents with the relevant land registry or county clerk’s office. It’s important to ensure that the title accurately reflects the agreed-upon ownership structure.
Changing from Joint Tenancy to Tenancy in Common
If you want to change the ownership structure from joint tenancy to tenancy in common, you’ll need to follow specific steps.
Severance of Joint Tenancy
The first step is to sever the joint tenancy. This can typically be done by an explicit agreement or action that demonstrates the intention to sever the joint tenancy, such as conveying or transferring a joint tenant’s interest. Once the joint tenancy is severed, the property will be held as tenancy in common.
Legal Advice
Changing the ownership structure can have legal and financial implications, so it’s crucial to seek legal advice before making any changes. An attorney or real estate professional can provide guidance on the specific steps and requirements in your jurisdiction.
Conclusion
Joint tenancy and tenancy in common are two different forms of property ownership, each with its own characteristics, benefits, and disadvantages. Understanding the differences and considering your specific circumstances can help you determine which ownership structure is most suitable for your needs. Whether you choose joint tenancy or tenancy in common, it’s important to ensure that all agreements and documentation are properly executed to protect the rights and interests of all parties involved.
