What is ‘Tenancy In Common’
1. “Tenancy in common” allows two or more people to be owners in a property. Each owner has the authority to will their share to anyone on death.
Joint Tenancy: What’s the difference?
The main difference between the ownerships is what happens when someone dies.
When a property is owned by the joint tenants, the interest is automatically transferred to the remaining owner. Most hubby and wife homes are set up this way. It makes it much easier on the death of a spouse.
Tenants in common don’t have the right of Survivorship
- All joint owners must acquire their interest in the property at the same time – Unity of time
- Unity of title: All joint owners must acquire their interest from the same transaction
- All joint owners interests must be identical in nature, extent, and duration – Unity of interest:
- Unity of possession: Each joint owner has equal right to possession of each part and to the whole of the property. But, not a right to exclusive possession of any part
Joint Tenancy: Transfer requirements
If a registered proprietor transfers a share to another person, they must be both transferor and transferee.
The transfer of joint tenant’s interest severs joint tenancy. And, the oncoming party will hold as tenant in common with remaining tenant/s. The tenancy between other tenants not involved in the transfer, remains unaltered.
Corporations (a body corporate) may hold as joint tenants. The estate or interest of a company that is dissolved passes to the remaining joint tenant(s). The change is noted on a Torrens title by means of a Request form 11R or Notice of Death form. This is accompanied by a certificate of dissolution of the company from the Australian Securities and Investment Commission.
In the detail: ‘Tenancy In Common’
When two or more people own property as tenants in common, all areas of the property are owned equally. Therefore, an individual can’t claim ownership to a specific part of the property.
One or more co-tenants may buy out another to dissolve the tenancy in common. A co-tenant may file a partition action if co-tenants are unwilling to sell. When the property is sold, proceeds are divided among co-tenants according to their interest. For mums and dads, it’s usually a 50/50 split.
Ownership Interests
Where tenants in common may not claim ownership to an individual part of a property, they may have different ownership interests. e.g. Sarah and Debbie own 25% each of a property, while Leticia owns 50%. A tenancy in common may be created anytime. An individual may obtain an interest years after others entered into tenancy-in-common ownership.
A tenancy in common also differs from a tenancy by the entirety in which the owners of property are married. Each spouse has an equal and undivided interest in the property.
In contrast, joint tenants obtain equal shares of a property with the same deed at the same time. Terms for joint tenants are detailed in the deed, title or legally binding property ownership documents. Some states have joint tenancy as the default ownership for married couples. Others have tenancy in common. A joint tenancy is broken when one or more tenants sell their interest in the property. e.g., one or more co-tenants buys out the others. The property is sold and proceeds distributed equally among the owners. Or a partition action is filed, letting an heir sell their stake in the property.
Rights of Survivorship
When an owner dies, what happens to the property depends on the type of ownership. Tenants in common have no rights of survivorship.
Unless the deceased person’s will specifies his interest in the property is to be divided among surviving owners, a deceased tenant in common’s interest belongs to his estate. Conversely, with joint tenants, the deceased’s interest is automatically transferred to the surviving owner/s. For example, when four joint tenants own a home and one dies, each of the three survivors ends up with one-third of the property.
If a registered proprietor is to transfer a share, to hold as a joint tenant with the oncoming person, the registered proprietor must be the transferor and transferee on the Transfer form. The transfer of joint tenant’s interest will sever the joint tenancy and the oncoming party will hold as tenant in common with remaining tenant/s.
The tenancy between the other tenants, not involved in the transfer, remains unaltered.
Corporations (a body corporate) may hold as joint tenants. The estate or interest of a company that is dissolved passes to the remaining joint tenant(s). The change is noted on a Torrens title by means of a Request form 11R or Notice of Death form, accompanied by a certificate of dissolution of the company from the Australian Securities and Investment Commission.
Tenancy-In-Common Agreements and Taxes
Because a tenancy-in-common agreement doesn’t divide a property, most jurisdictions won’t separately assign tax bills in proportion to interests. Usually, tenants in common receive a single property tax bill. The tenancy-in-common agreement outlines implications of shared ownership on property taxes. This includes how tax liability is contractually distributed to each owner.
In many areas, a tenancy-in-common agreement imposes ‘joint and several liability’ on tenants. This means each owner can be liable up to the full amount of property tax. This is regardless of their ownership interests. In this case, the owner is entitled to a deduction equal to the amount he actually paid. Where joint and several liability is not imposed, owners can only deduct property tax in proportion to their ownership. No matter the amount they actually paid!
Pros and Cons of Tenancy in Common
Buying a home with a family member, friend or business partner as tenants in common helps individuals enter the market more easily. Because deposits and payments are divided, purchasing and maintaining the property may be less expensive than on your own. Also, borrowing capacity may be greater when one individual with a greater income owns a larger percentage of the property. In addition, a co-tenant may use a will for designating who receives his interest, giving you more control over your share. This is a great tool for Estate Planning!
When mortgaging a property as tenants in common, all borrowers sign the documents. That way, the lender can take over the entire property in case of default. If one or more borrowers ceases contributions to the mortgage, other borrowers must cover the payments. That part’s not so great! Also, if a co-tenant dies without a will, his interest goes through probate, a costly exercise. In addition, remaining co-tenants may own the property with someone they do not know. Furthermore, a tenant in common may file a partition action, forcing unwilling co-tenants to sell the property.
As you can see, there’s a lot to be considered before choosing which way to go.
Fore more information, head over to the Canstar site to confirm that basics about “Tenants in Common vs joint tenants: What’s the difference?” And getting your own legal advice is always a great idea.
It’s complicated, right? So don’t hesitate to check in with your lawyer. Or give your Robina based financial advisers at Wealth Planning Partners a call on 07 5593 0855. Find out more about Amanda Cassar and Mitch Cassar on our website.
*PodProperty
February 14, 2024 
