When you buy a property with someone else, you have to decide whether you want to be joint tenants or tenants in common. These are legal terms, with specific implications. This article defines them, explains the difference, and gives some real-life examples of how they can play out.
By far the most common reason for joint purchase is that you and your partner are a couple. You combine your earnings and buy a property to live in together, or as an investment.
Alternatively, you might buy a property with parents, siblings or friends. These scenarios are becoming more common as a way for people to get into the property market.
Joint tenancy means that you and the other tenants (owners) each have shared ownership of the entire property. It also entails the concept of survivorship.
Survivorship means that if one person dies, the property is automatically transferred to the surviving tenant or tenants. You do not need to include this in your will. If you die and a Notice of Death is lodged, your name is taken off the title, leaving the survivor(s) owning the property.
Even if you have a will saying you want the property to go to someone else, the survivorship included in your joint tenancy takes precedence. Ownership of the property will go to the joint tenant(s), not to those specified in your will.
If you are tenants in common, the legal situation is slightly different. Rather than shared ownership of the entire property, each of you owns a percentage of the property.
Of course, when you’re living in the property together, it makes no difference what the legal interpretation of ownership is. But if you’re tenants in common, some things are different.
· In theory, you can sell your share of the property independently of the other owners. In practice, it’s going to be tough to find a buyer who isn’t already a family member.
· If you die, you can leave your share of the property to whomever you want.
This can be positive or negative, depending on your specific situation. It’s especially complicated for people in blended families.
If you’re in a blended family, you want a solution which balances the needs of:
· Your current partner
· Any children you have with your current partner
· Any children you have from previous relationships
· Any children your partner has from previous relationships
Some or all of these people may be dependents. There is no simple one-size-fits-all answer.
Here are a couple of examples from our experience which show how things could play out.
In our experience, most married couples with no blended family choose joint tenancy. But imagine this real life scenario:
Your parents own a property as joint tenants. Your mother dies, and the property is transferred to the sole name of your father. He later remarries and your new stepmother is added as a joint tenant. She has children of her own, and you all live together in a happy blended family. But then your father dies, leaving your stepmother as the sole owner of the property. Here’s where it can get messy. What if your stepmother’s will pre-dates her second marriage, the one to your father? It only provides for her biological children not for you.
Even though your parents bought the property originally; even though your father and stepmother cared for you and your step-siblings equally, the legal situation is that the entire property will be transferred to your step-siblings. You will receive nothing.
Joint tenancy may seem ideal at first glance, but it’s worth considering how your circumstances may change.
In this blended family, the couple owned the property as tenants in common. It was their primary place of residence.
The husband died, and he had no will. His share of the property, as per intestacy laws, went to his children. They wanted to sell and realise the money. They forced their stepmother to a sale. She had half the equity, but she lost her home and had nowhere to go.
One thing you may have noticed in these stories is that people didn’t have wills, or had wills which were out of date.
When you buy property, you have a significant asset. If you’re buying with a partner, you may also have or be considering children, which means you have dependents. Remember too that you probably spend a lot of time with your partner. The worst case scenario is that you and your partner are together and die in the same accident. What happens to your property then?
For all these reasons, we strongly recommend you consider estate planning. If you don’t think about it now, you risk creating a headache for one or more of your loved ones in the future.
As conveyancers, we are qualified and licensed to handle property matters only. We can share some client experiences, like those above, but we cannot provide estate planning advice. If you don’t know an estate planning lawyer, we have some excellent and trusted contacts we can refer you to, who will advise you on your situation.
Only you and your partner can decide which arrangement is right for you.
The key difference is survivorship. It’s all about what you would like to happen if you die.
· If you are joint tenants, on your death your partner will inherit your share of the property.
· If you are tenants in common, your share of the property becomes part of your estate. You can write a will leaving it to whomever you choose. If you have no will it will be passed on according to the laws of intestacy.
Your death or your partner’s death is not something you want to consider when you’re buying your first home, or even when you’re upsizing as your family grows. But we strongly recommend you do.
It’s a good idea to start thinking about joint tenancy vs tenants in common as soon as you start looking to purchase, but you don’t need to decide immediately. Your deadline is the date of settlement.
Even if you don’t do anything before you exchange contracts, you’ll still have four weeks or more to get legal advice. That’s enough time to work out what arrangement is right for you. It’s worth doing, for your own peace of mind.
