In Australia, joint tenants and tenants in common are two different forms of property ownership that have important legal and financial implications.
Whether you’re a couple, family members or just co-owners or real estate investment partners, it’s essential to know how your property ownership rights are defined to have properly managed estate planning.
What is joint tenancy?
Joint tenancy is a form of ownership where two or more individuals are joint owners of the same property, with each owner having an equal share in the property. It’s very common arrangement for married couples.
In a joint tenancy, when one owner dies, their share of the property automatically passes to the surviving joint tenant(s) by the right of survivorship, regardless of what is stated in their will or previous relationships.
So if a married couple each have 50% ownership of a property and on of them dies, the other automatically owns the whole property.
What is conveyancing, and what does a conveyancer do?
What is tenants in common?
Tenants in common, on the other hand, refers to a form of property ownership where two or more individuals own the same property but with no automatic right of survivorship.
Each owner holds a distinct share in the property, which can be an equal or unequal share, and they are free to transfer or sell their share without the consent of the other owners. The defined share does not need to reflect the portion of financial contribution to the purchase price.
When one owner dies, their share of the property passes to their heirs according to their will or intestacy laws. The key difference between the two is the right of survivorship.
What is the main difference?
Both are types of ownership but vary in how they relate to estate planning and beneficiaries.
In joint tenancy, when one owner dies, their share of the property automatically passes to the surviving owner(s). In tenancy in common, the deceased owner’s share is passed on according to their will or the laws of intestacy.
If you share co-ownership of a property with others, you’ll need to decide whether you are tenants in common or joint tenants when you sign the loan documentation to complete the purchase.
It’s worth noting that in some Australian states, joint tenancy is the default form of property ownership, while in others, tenants in common is the default. It’s important to seek legal advice when deciding which form of ownership is best for your circumstances.
An example of tenants in common
Kate and Sean are friends who agree to become co-owners of a home in Redfern, New South Wales (NSW) as tenants in common.
While both are owners of the property, Kate contributed more to the purchase, so she owns a majority share of 60%. They lived in the home during their 20s before both moving out and to different states over the next decade for work—during which time they rented out their home.
Many years later, Kate passed away. After lodging the notice of death and doing the appropriate paperwork, Kate’s interest in the property (her rights to ownership in the property) became part of her estate, left to her inheritors in her will. It did not automatically transfer to Sean, who still retains his 40% ownership.
If Kate and Sean had been joint tenants, Kate’s share of the property would have been transferred to Sean upon her death.
An example of simultaneous tenants in common and joint tenants
There is a third possible situation where multiple co-owners enter into an agreement as both joint tenants and tenants in common.
Say Rachel and Mario are a married couple. They agree to go on title with their son and daughter-in-law, Daniel and Lydia, to help them get their foot on the property ladder.
As their son and daughter-in-law cannot afford to own property as sole owners, Rachel and Mario are using equity to help them.
To ensure everyone is protected, they will all go on title as follows:
Rachel and Mario will be joint tenants with a 50% share, and Daniel and Lydia will be joint tenants on their half, also as tenants in common with Rachel and Mario.
So, if one of Rachel or Mario passes away, then their share will be automatically passed to the other, but not to Lydia or Daniel. The surviving tenant can then nominate a beneficiary for their 50% share in their will. The same goes for Lydia and Daniel and their 50% share.
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Why do we need to nominate how we hold the property?
There are many reasons to nominate your type of joint ownership:
- When you get a home loan, your lender must know how you hold the property to understand the appropriate action if you default. If you hold the property as a tenant in common, then the bank does not have recourse to your co-owner’s share of the property.
- If you own multiple properties as a joint tenant, then the Office of State Revenue (Land Tax) will need to know, as you may be liable for land duty tax.
- When you pass, it makes the inheritance process much simpler if there is a clearly defined holding of property in a valid will.
