Buying a property is often a big decision especially when you do so with someone else. In New South Wales, one important consideration when two people are purchasing a property is whether they purchase the property as joint tenants or tenants in common.
Importantly, these two types of ownership have significantly different legal and financial ramifications. In this article, we outline some of these differences so you can start thinking about what type of ownership is right for your situation.
If you are currently looking to purchase a property with another person, the team at Burgess Thomson can help. We are highly regarded in property law and can provide you with the professional and individualised legal advice for your unique situation.
Joint Tenants
Joint tenants own the property jointly and equally. The law specifies that joint tenants have a “right to survivorship” meaning if one joint tenant dies, their interest in the property will be automatically transferred to the co-owner, despite any wishes to the contrary in their will.
Further, in the event where both tenants pass away simultaneously, the ownership held by the tenant who is the oldest will automatically and involuntarily revert to the younger tenant’s estate.
This option is usually most appealing for those who already share equal ownership of other assets. Joint tenants are typically married couples or de facto couples who are in a long-term relationship. However, every situation varies.
In New South Wales, joint tenancy is the default selection when purchasing a property. Therefore, you must indicate in the alternative if you do not wish to purchase as joint tenants.
Tenants in Common
Tenants in common differs from joint tenancy significantly. First, tenants in common own shares in the property which may be divided unequally, for example, 60% and 40% or 99% and 1%. Second, if a tenant in common dies, their interest is not transferred to the surviving tenant, but rather forms part of their estate. This share will be distributed to beneficiaries according to their will.
The form of ownership you choose will depend on your individual circumstances and relationship with the co-owner.
Examples of Ownership
Couples in long term relationships often enjoy joint ownership of most of their possessions. In this scenario, it is common for co-owners to hold a joint interest in the property to reflect their shared life.
However, there are situations where a couple in a long-term relationship may wish to own the property as tenants in common. For example, if the parties each have children from previous relationships, they may wish their share in the property to pass to their children rather than to their spouse. If they own the property as tenants in common, they can allocate their shares to beneficiaries in their will.
Couples in a new relationship with an uncertain future may also elect to own the property as tenants in common. This can be wise if couples wish to account for any future breakdown in the relationship.
Both Joint Tenants and Tenants In Common
It is also possible for a property to be owned by multiple parties as joint tenants and tenants in common.
Imagine two married couples, A/B (Alan and Betty) and C/D (Chris and Dorothy), are in a business partnership. Alan and Betty, and their business partners, Chris and Dorothy, are purchasing a property from which they’ll run their business.
Because Alan and Betty want to keep their interest in the property separate from Chris and Dorothy, they elect to own the property as tenants in common. This means that if both Alan and Betty die, their 50% interest will be distributed according to their wills; the share will not automatically be transferred to Chris and Dorothy.
Alan and Betty are happily married and both of them would like their 50% interest in the property to be fully owned by their spouse if one of them were to die. Therefore, Alan and Betty elect to equally share ownership of their 50% as joint tenants. If Alan dies, Betty will be transferred full ownership of their 50% interest in the property (and vice versa).
Ending or Severing Joint Tenancy
Joint tenancy ends when the owned property is sold to third party or when all interest in the property is transferred to one tenant (by the death of, or election by, the other tenants).
Sometimes joint tenants wish to sever their joint tenancy in favour of owning a property as tenants in common.
This could occur when, for example, the relationship between joint tenants has broken down or when siblings have inherited a property jointly but wish to own it in separate shares.
In these situations, the joint tenancy may be severed unilaterally (by one party) or by agreement. To do this, the tenant wishing to sever the joint tenancy must transfer their interest in the property to “themselves” which is lodged with Land Registry Services via PEXA.
How Burgess Thomson Can Help
Before purchasing a property with another person or entity, it is essential to understand the implications of owning your property as joint tenants or tenants in common. The team at Burgess Thomson has substantial experience in carefully and efficiently assisting clients with conveyancing matters.
If you are looking to purchase a property, please do not hesitate to contact our office on 02 4929 5602 to arrange an appointment.
