Considering purchasing a piece of property with an individual or a group of people? First, you need to understand some things about joint owners.
When entering into a property ownership arrangement, you need to decide which owners will hold the title to the property.
When you have an ownership arrangement with two or more people, each person involved will own a share of the property. Owning shares of a property with others does not mean that each person owns a specific part of the property. Instead, each person shares the ownership of the entire property.
Two of the most common types of property ownership are joint tenancy and tenants in common. Either ownership option will allow you to establish joint ownership, but some key differences exist between the two. We'll cover the two forms of ownership and their basic differences to give you a sense of which ownership option might work best for you.
What Is Joint Tenancy?
Joint tenancy is the most common agreement used by married couples, as it generally determines that both individuals own the property entirely without any divided interest. Joint tenants must hold an equal amount of real property shares (proportionate to the number of owners involved) and obtain those shares simultaneously.
With joint tenancy, if one of the owners passes away, the remaining owners inherit the deceased's interest in the property. This is known as the “rights of survivorship” clause, which ensures that the property avoids probate court and passes directly to the other owners.
Additionally, in the case of joint tenancy, the estate property taxes are delayed when passed to another owner. For example, if the owners were a married couple, the ownership of property would transfer to the spouse in the case of a deceased owner. Later, the estate tax would be applied when the other spouse passes away and leaves the title to property to the children.
Note that joint tenants have equal ownership shares in the property. Therefore, joint owners cannot act as sole owners and simply sell their portion as personal property. Joint tenants may not sell the property without consent from all the owners for this to occur. If one of the co-owners transfers their share of property, the joint tenancy is converted into a tenancy in common.
What Is Tenancy in Common?
Tenancy in common is a real estate ownership arrangement between two or more people in which each owner has a distinct interest in the property. Tenancy in common can be created by a deed that transfers ownership interest from a previous owner to the new owners, or new owners can inherit or purchase ownership shares from previous owners at varying times.
Unlike with a joint tenancy that requires equal ownership, common tenancy allows each owner to have a different percentage of ownership in the property. Additionally, ownership interest in the property can be obtained at different times, even years after the original owners.
Similar to joint tenancy, owners cannot claim specific parts or aspects of the property, as their percentage of ownership interest pertains to the property as a whole. Owners only have the right to their own interest in the property. For example, if something happened to an owner, their interest in the property would pass on to their heirs -- making them a joint property owner. It would not be passed on to the other owners.
Tenancy in common allows owners to sell their ownership interest in the property at any point without requiring the consent of the other owners. Similarly, owners can mortgage or transfer their interest in the property.
Joint Tenancy and Tenancy in Common
As you can tell from above, joint tenants and tenants in common have many similarities. Still, it's important to note the critical differences between them. One of the essential differences between the two is how each handles the right of survivorship.
If an owner dies, what happens to their ownership interest in the property is handled differently between joint tenancy and tenancy in common.
- Joint tenancy - In a joint tenancy agreement, when one owner dies, the deceased owner's interest is transferred to the other owner(s).
Tenancy in Common - In a tenancy in common agreement,
when the owner dies, the remaining owners do not have
survivorship rights. In other words, the ownership interest is
passed on to the specified heirs of the deceased. Note,
however, that the remaining owner(s) could receive the
ownership interest if this is specified in the deceased's
will, which would be handled by the estate planning attorney.
- This type of ownership can be useful for property owners that are unrelated, as it allows the owner to determine who will inherit their share of the property. However, it may have to go through the probate process in court. But as long as you have clearly stated your wishes, there shouldn't be any problems.
Joint Tenancy vs. Tenancy in
Common: Closing Thoughts
Whether you're looking to purchase property with a spouse, family member, friend, or business partner, it's important that you determine how you will title your property. Either choice, joint tenancy or tenancy in common, will have important implications that everyone with a share of ownership in the property should understand.
While a joint tenancy does not require a separate agreement on the deed, tenants in common should get ownership agreements in writing and any other information pertinent to your specific situation to avoid any potential legal issues.
Most important, however, is understanding that real estate decisions such as these can carry huge financial implications. Before you go ahead and make any final ownership decisions, it's wise to seek the advice of an attorney when it pertains to community property rights. Professional advice from an attorney will not only ensure you're handling matters correctly but help to ensure you're making the best decisions for your future and financial well-being.
Tenancy in Common (TIC) is a legal arrangement in which two or more parties share ownership rights in a real estate property or parcel of land. Each independent owner may control an equal or different percentage of the total property, whether commercial or residential. The parties are known as tenants in common.