If two or more people acquire a property asset together, it can be as either joint tenants vs tenants in common. So what does this mean in property law? And how are these different? Many lawyers refer to joint tenancy as the family arrangement, and tenants in common as a business arrangement. However, this is not always the case. Section 33 of the Property Law Act 1974 (QLD) governs the two situations where two or more parties hold either the property or an interest in the property. Read on to find out more about a joint tenant vs tenancy in common.
What is joint tenancy?
Joint tenancy refers to a legal arrangement in which two or more parties own a property together, with equal rights and obligations. Joint tenancies are generally created by couples, business associates, friends or relatives. Joint tenancy creates a right of survivorship in which, if an owner dies, their interest in the property asset is automatically transferred to the surviving party(s) without needing to go through the court system or probate. The parties come together at the same time to create a legally-binding contract with one another via a deed. All parties that have acquired the property assets have an equal interest in the property. A joint tenancy will only exist when the four unities are present:
- Unity of time;
- Unity of title;
- Unity of interest; and
- Unity of possession.
These unities refer to; when the parties’ took their interests, that they must be under the same instrument, nature, that they are entitled to possession of the whole property in common with the other parties, and that they took their interests simultaneously.
What does the term tenants in common mean?
Parties owning a property as tenants in common means that two or more people co-own a property in defined shares that can be disposed of however they wish. Tenants in common can also be referred to as co-ownership of a property. These shares can be either equal or unequal, and the way they are split will depend on the agreement the parties decide. The tenants in common can either sell their shares in the property asset or assign away in their respective wills. Generally, tenants in common are investors buying property together, people who contribute different amounts when purchasing the asset, or parties with adult children entering their second marriages.
What is the difference between joint tenants vs tenants in common?
The main difference between the two common types of classification pertaining to ownership of a property is what occurs to a parties share in the property after their death. A joint tenancy does not have a separate right interest to leave the estate in their will because the right of survivorship applies. There is no right to survivorship with a tenancy in common, and instead, a tenant in common can deal with their shares in any way they choose, such as gifting it, selling it or leaving it in their will.
Additionally, with a joint tenancy, the parties shares in the property are equally divisible and no person has a distinct share or title to the property. Whereas with tenants in common, shares may be unequal and each party will have different claims to their title.
What are the pros and cons of joint tenancy?
The advantages of being in a joint tenancy include:
- The ability to avoid probate or going through the court system due to right of survivorship;
- The right to the rents and profits that the property receives; and
- Tax benefits.
The disadvantages of being in a joint tenancy include:
- Exposure to creditors;
- Lack of inheritance rights due to right of survivorship;
- Greater responsibility for paying their proportionate financial obligations such as taxes;
- Lack of freedom as a person must get permission from the other joint tenants when making certain arrangements for the property; and
- Maintenance and repairs.
What are the pros and cons of being a tenant in common?
The advantages of being a tenant in common include:
- Right to the entire property;
- Flexibility, including the ability to add owners over time;
- Different degrees of ownership possible; and
- The right to facilitate property purchases.
The disadvantages of being a tenant in common include:
- Right of a co-owner to sell their share of the property without consulting the other co-owners;
- Estate can be challenged and one tenant can force sale of the property;
- No automatic survivorship rights; and
- All tenants equally liable for debt and taxes.
What is the right of survivorship?
When a co-owner of a property dies in a joint tenancy, the survivors’ interests are enlarged to the extent of the deceased co-owner’s interest. For example: if two people hold land as a joint tenant and one party dies, the survivor takes all.
What happens if a joint tenant dies?
Applying only to joint tenants and not tenants in common, if one joint tenant dies, the interest in the property is passed on to the surviving joint tenant/s immediately, due to the right of survivorship. If in Queensland, you must record the death of the deceased joint tenant with Titles Queensland. You must:
- Complete the relevant forms carefully as they are legally binding, using the request to record death Form 4;
- Have a qualified witness (such as a justice of the peace) witness you signing the documents. Make sure to take along proof of identity so the witness can verify;
- To lodge, you must complete Form 4 – request to record a death, have an original certified copy of the death certificate, and you must pay the relevant fees associated; and
- If you have any issues or circumstances that you are unsure of how to handle, you should contact a lawyer and seek their advice.
For more information, see here.
What happens to a deceased estate when a tenant in common dies?
As aforementioned, regarding tenants in common, there is no right to survivorship. Upon the death of one party to the tenants in common, the deceased’s person’s share of the estate or property is distributed in accordance with their will. Further, note that tenants in common are not required to own equal percentages of a property, however, each tenant has the right to use the entirety of the property.
When a tenant in common dies, the parties will have options such as; agreeing to sell the property, buying out the beneficiary’s share or keeping the property between themselves and the beneficiary. If the parties cannot agree, one tenant can file a partition action in court to and the court will decipher the best way to separate the tenant’s shares in the estate. Thus, when one tenant dies, issues with the beneficiary of the will and the remaining tenants in common can arise. It is recommended to have a strong written agreement drafted and signed by the parties in case of these circumstances and to avoid disputes.
If you require further assistance with anything related to joint tenants vs tenants in common, you should seek legal advice. Our sister company Legal Kitz can direct you with your next step, whether you need assistance drafting a written agreement in case a tenant in common dies, or if you are unsure of whether to share joint tenancy with another party. Our Legal Kitz business specialists can assist with ensuring that your concerns are addressed, and can provide you with advice that is tailored to your situation. You can book a free 30-minute consultation via our website now.