Tenants in Common vs Joint Tenancy

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The two most common forms of joint ownership of property is for property to be held either as ‘tenants in common’ or ‘joint tenants’ (the type of holding is sometimes referred to as tenure). The way that you hold joint property will determine how your interest in the property will be dealt with when you pass away and it is important that the tenure reflects your intentions.

Tenants in common

Tenants in common is a holding type where two or more parties can co-own a property in defined shares that they can dispose of as they desire. The ownership share can be in any proportion (i.e. it does not have to be an equal interest).

A tenant in common can give his or her interest in the property by will as there is no right to survivorship. This type of ownership is popular with owners who do not necessarily want their share to automatically pass to the surviving owner(s).

It is important to understand that the surviving co-owner(s) may become co-owners with a person(s) they did not originally intend to own the property with.

Joint tenancy

Where parties hold property as joint tenants, all joint tenants have an equal interest in the property and the right of survivorship exists. The right of survivorship provides that if one of the joint tenants dies, then the property will automatically pass to the surviving joint tenant(s), it will not form part of the deceased person’s estate and be distributed in accordance with his or her will (unless the deceased person is the last surviving joint tenant).

CASE STUDY 1 – Desire to benefit children

Jason and Martha are in a de facto relationship. Each have one child from a previous relationship. Jason and Martha made the decision that upon the death of each of them, the deceased’s child will receive the whole of the deceased’s estate, including any interest in properties they own.

In order for this to be achieved, it will be necessary for them to hold their respective interests as tenants in common so that interest will form part of their estate to be distributed pursuant to the terms of their will.

If Jason and Martha held the property as joint tenants, then on the death of one of them, their interest would pass to the surviving joint tenant and then be dealt with by the terms of the survivor’s will. This may mean that their intended beneficiary does not receive their interest.

CASE STUDY 2 – Asset protection

Jason and Martha are married and have two young children and own a property in equal shares. Martha has an adult child from a previous relationship who has a gambling problem and from whom she is estranged.

Martha wants to ensure that if something happens to her that her husband and young children can continue to live in the property. Martha is concerned that on her death her adult child will make a claim against the estate and she wants to protect the property.

If Martha and Jason own the property as tenants in common, then Martha’s interest in the property will form part of her estate and be open to a claim.

However, if Martha and Jason own the property as joint tenants then on Martha’s death, the right of survivorship will apply and the property will pass to Jason as the surviving joint tenant. The property will not form part of her estate.  (Note: If the property is in New South Wales, a New South Wales court may still treat the property as if it were held as tenants in common).

Changing of tenure

You can change how a property is held from tenants in common to joint tenants and vice versa. The most common example of this is severing a joint tenancy in favour of a tenancy in common.

However, before you change the ownership of your property, it is important you receive advice as the change of ownership may result in transfer duty and/ or other taxation implications (especially if there is a change in the value of each co-owner’s interest in the property).

Matters to be aware of

There is no ‘one size fits all’ approach when it comes to determining the tenure of a property. It is dependent on your individual circumstances and what outcomes you are seeking to achieve. We recommend that you consult with us so we can develop a tailored estate plan that fits your particular needs.

By: Emma Nisbet and Melanie Rego

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