Tenancy in common

Joint tenants are equal owners of a property, for example, if there are four owners, they each own 25%. When a joint tenant dies, that person’s share of the property is automatically passed on to the surviving joint tenants, without ever becoming part of the deceased’s estate and without reference to any will in effect. In the example above, if one of the four dies, the remaining three inherit, not the deceased’s surviving spouse or children, and now each joint tenant owns one-third of the property in question.

Tenants in common, on the other hand, can own different shares of the property, for example, 60/40 or 20/25/55 or any other division. These percentages of ownership do not necessarily reflect the contribution each owner puts into the property, and each owner can dispose of their share without reference to the remaining owners, although in practice that can be difficult. Many partnership agreements, therefore, contain a clause that, before any owner can offer that percentage of the property for sale to the general public, it must first be offered to the other owners.

When a tenant in common dies, that person’s share of the property is passed on to their inheritors through a will, like any other form of personal property.

The form of holding joint property can be altered after purchase, from one to the other, generally through severing a joint tenancy and forming a tenancy in common. Should disputes arise between the owners, these may be solved amongst the owners themselves, through a mediator, or through the sale of the property by a court-appointed trustee. If the property documentation does not specify the form of ownership, the law determines the joint owners to be tenants in common with equal shares, which could be costly to any owner who made a majority contribution.

Joint tenancy is most often found when property is owned by close relations, for example, a husband and wife or siblings. Should either die, the survivor inherits without reference to the will, if any. However, with so many marriages now ending in divorce, recently more couples are opting for tenancy in common, making buying out the other partner a possibility. Also, if either partner has children by a previous marriage, a tenancy in common will allow those children to inherit a portion of that property following the parent’s death, which would not happen in a joint tenancy.

Tenancy in common is also often used in real estate investment schemes, and the holdings should reflect the contribution made by each owner. However, at times it can be worthwhile to alter the percentages to protect the investment from outside interests. The classic example is the case where one of the purchasers is a stockbroker, who can be sued and declared bankrupt in the instance of having given poor advice, and whose interest in the property could therefore be reduced to a lower percentage to prevent it becoming a target of creditors.

Article correct at its author date: May 2008. Copyright Virtual Office Space, Any unauthorised reproduction of this article will be prosecuted to the full extent of the law. Credit Cards Australia.

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