01 Nov Joint Tenants or Tenants in Common…. What’s the difference?
Today it’s common for couples to purchase a property before they’ve walked down the aisle or even lived together.
Naturally they assume they’ll be together forever, and don’t often research the long term consequences of how their ownership should be structured.
To help better understand this, we will discuss the law surrounding property ownership.
In Australia, if you’ve bought a property with another person there are two ways your ownership could be described. You have entered into either a joint tenancy or a tenancy in common agreement.
Either way you own a share of the property but depending on which agreement is right for you, the two different structures have very different consequences.
Joint Tenancy is by far the most common agreement that couples enter into.
Joint tenants together own the whole property “jointly” (together) equally (50% each) and the interests of one party is not separate or distinct from the other. This is regardless of who the main contributor to the deposit or the mortgage is.
For example, in a joint tenancy, one partner may start earning more and hence paying more off the mortgage but this does not increase their stake in the asset.
A joint tenancy has no severable share, which means if one of the partners passes away, the surviving partner automatically receives ownership of the property. This also means they’ll also incur full responsibility for the outstanding debt.
The joint tenancy, therefore, is all about equality and lenders will treat the couple as one person, or one mortgagee.
This also means that from an estate planning perspective, you can’t leave your share in a jointly owned property to nominated beneficiaries.
TENANCY IN COMMON
On the other hand, if you own your property as tenants in common, you own a separate and distinct (individual) share in the property.
You could own an equal share (50% each) or you could own 80% and your partner 20% or in any other proportion.
For example, you may only contribute $25,000 of the $100,000 deposit whilst your partner contributes the remaining $75,000.
In this instance, you would hold 25% share of the asset whilst your partner would hold a 75% share. This would then mean that you would be responsible for mortgae repayments of the same proportions – you would pay 25% your partner was responsible for the remaining 75%.
These percentages are identified on the Certificate of Title and if no percentages appear on the Title it is deemed that the property is held as tenants in common.
If you separate from your partner, under a tenancy in common agreement you maintain your share of the property and in the event your partner dies in a tenancy in common, their share doesn’t automatically default to you, but rather is delegated in accordance with their will.
That’s why if you’ve entered into a tenancy in common arrangement and have split from your partner, it is imperative to make sure your will is in place and up to date.
But whilst the law is clear on ownership under a tenancy in common arrangement… the banks don’t see it that way.
Your mortgage under tenancy in common is typically a shared responsibility -what the banks call joint and several liabilities between all parties. This means if one person defaults, then the other will need to make up the repayments.
WHEN DO YOU DECIDE WHICH WAY TO GO?
Most solicitors or conveyances will assume that when you purchase a property it will be as joint tenants. You will need to ensure that they are instructed, if you are looking at purchasing as tenants in common with the proportion of ownership for each party.
There are equally good reasons to own property as joint tenants or as tenants in common so it’s important that you seek advice regarding your personal situation.
It’s extremely common for people to choose a tenants in common agreement in the case of second marriages where there are children from a first marriage or when they want to split the tax deductibility of mortgage payments between the higher and lower income earners.
Credit: https://au. finance.Yahoo.com