Owning property is a big deal. Owning property with another person(s) is an even bigger deal. It is quite common for people who are married or in long term relationships, friends, siblings, or parents and children to pool their savings together to purchase property.
But once the big decision is made to purchase property together, people often overlook or don’t understand how the property will be co-owned.
If you own property with another person(s) the very first thing you need to decide is which type of co-ownership you want. There are two types of co-ownership, tenancy-in-common or joint tenancy. Both types of co-ownership can involve two or more people but different rights and consequences arise from the each type of co-ownership.
Tenancy in common: One key feature of a tenancy-in-common is that each owner has a defined share in the property. Tenants-in-common can own property in either equal shares or unequal shares. For example one owner may own 50% of the property and the other owner the other 50% of the property. Or one owner may own 30% of the property and the other owner may own 70%.
The other key feature is that the owners are able to deal with their shares individually which means they can gift their respective share in the property in their will. Therefore, it is important that all tenants-in-common have a valid and current will.
A tenancy-in-common is usually more suitable where the purchasers are friends, relatives or business partners. A tenancy-in-common may also be preferred in the case of second marriages where there are children from the first marriage and can be particularly useful as an estate planning tool.
Joint tenancy: Unlike a tenancy-in-common, joint tenants own the whole of the property together. The rule of survivorship applies meaning that if one owner dies, the other owner(s) automatically receive the deceased owner’s share of the property. It is important to understand that joint tenants cannot gift their share in the property to anyone else in their will. When people make wills they are often unaware of this crucial feature of a joint tenancy. A joint tenancy is commonly used by married or de facto couples.
The best time to decide how you are going to own property is when it is purchased. Unfortunately, the topic is often not raised by real estate agents or conveyancers or if it is, it is not adequately explained. Unless it is otherwise stipulated on the transfer document the default position is that the property will be owned as joint tenants.
The type of ownership is described on the certificate of title. If you are unsure as to whether your property is held as tenants in common or joint tenants check the title. If you do not hold the title, a title search will confirm the type of co-ownership.
Whether you should co-own property as tenants-in-common or joint tenants depends on your circumstances and legal advice should be sought about the best structure for your situation.
*this article was first published in the Weekly Review - http://www.theweeklyreview.com.au/pub/geelong/