Although the terms sound similar, Joint Tenants and Tenants In Common hold very different legal and financial responsibilities.
When purchasing a property with another person (or people), it’s important to consider the type of ownership before signing the dotted line. If you don’t specify the type of ownership you want when purchasing the property, the law will automatically assume it is a joint tenancy which may not be the best fit for your situation.
Option 1: Joint tenancy (also called “Joint Proprietors”)
Put simply, this means all owners have equal ownership and interest in the property. These are usually married couples or those in long-term relationships that typically share other large assets, such as cars. A joint tenancy in these situations makes sense as the couple continue sharing their lives together. Of course other types of relationships can engage in a joint tenancy ownership as long as all parties are okay with the right of survivorship.
What is the right of survivorship?
The right of survivorship means that if one owner passes away, the property is automatically passed on to the surviving joint owner(s). This means that the property cannot be passed on to another person in the deceased person’s will. (Hint: when preparing a will, make sure you consider the types of ownership of your properties – saves a lot of hassle later!)
How many joint tenants can there be?
There can be multiple (i.e. more than 2). However, because the interests of each joint tenant must be created at the same time (i.e. when the property is bought), a new joint tenant cannot simply be added later. To add new joint tenants, the property must be transferred from the old joint tenants to the new joint tenants. (Note: This could have serious tax consequences, including stamp duty!)
Can a joint tenancy be ended?
Yes. When one of the joint tenants transfers their interest in the property, the joint tenancy is surrendered. This could be because the property is sold to a third party or because one joint tenant transfers their share to the other joint tenant/s (making them the sole owner). A joint tenant can also end the joint tenancy without the permission of the other owners (“unilateral severance”).
Ending a joint tenancy means that the right of survivorship no longer applies – and transfers the type of ownership to tenants in common.
Option 2: Tenants in Common
Unlike joint tenants, where all owners are equal, tenants in common means that two or more people can have different shares of the one property. The way the shares are divided is up to the tenants to decide. For example, one tenant may own 70% of a property while the other owns 30%. This type of ownership is typically used when investors buy property together, when people entering second marriages want to leave their share to their adult children in their will, or for people who will be contributing largely different amounts towards the purchase price.
The benefit of a tenants in common arrangement is that there is no right of survivorship, meaning one owner can sell their share of the property or leave their share to someone in their will. If one owner passes away, the other owners’ share in the property will stay the same.
