Joint Tenancy vs Tenants in Common in Real Estate Transactions

Jul 18th 2023

Introduction to Joint Tenancy and Tenants in Common

When it comes to multiple owners of the same property, there are two forms of co-ownership: namely, Joint Tenancy and Tenants in Common. This article will define what each form of co-ownership mean together with its respective pros and cons. We will also discuss the importance of a co-ownership agreement, and how it can mitigate disputes and provide clarity in shared ownership scenarios, whether in joint tenancy or tenancy in common. 

What is Joint Tenancy Ownership in Real Estate Transactions?

Joint tenancy is a form of shared property ownership where each owner has an equal and undivided right to the property. This arrangement carries a unique feature known as the “right of survivorship,” meaning that when one owner passes away, their share in the property automatically transfers to the surviving joint tenant(s), bypassing the need for probate court. This form of ownership applies to both individuals and corporations. 

Joint Tenancy comes with its own set of advantages and disadvantages. Let’s delve into them.

Advantages of Joint Tenancy:

• Ease of Transfer: One of the primary advantages of joint tenancy is the “right of survivorship.” Upon the death of a joint tenant, their share is transferred directly to the surviving owner(s) without having to go through the probate process. This ensures a smoother transition of property ownership. On the death of the joint tenant, to transfer title to the surviving joint tenant your real estate lawyer will register a survivorship application to the title of the property. 
• Avoidance of Probate: As the property doesn’t become part of the deceased’s estate, it avoids probate fees and won’t be subject to claims from creditors.

Disadvantages of Joint Tenancy:

• Immediate Gift: The moment you enter into a joint tenancy, it’s akin to making an immediate gift. You relinquish part of your control over the property and it becomes partly owned by the other joint tenant(s).
• Vulnerability to Claims: The jointly held property might be subject to the claims of the other joint tenant’s spouse or creditors, creating potential complications.
• Tax Consequences: There could be immediate tax implications unless the property is your principal residence or the other joint tenant is your spouse. Any increase in the property’s value from the time you acquired it to the time of the transfer may be taxable. After the transfer, each joint owner is entitled to an equal part of any income earned from the property and any increase in its value, potentially leading to tax liabilities.
• Death of a Joint Tenant: Upon the death of the first joint tenant, their estate—not the surviving joint tenant—will have to pay tax on any increase in value of the property, barring principal residences.

Joint tenancy can be an advantageous arrangement for many, especially those wanting to bypass the probate process, but it also entails potential risks. It’s crucial to consider all aspects, preferably with a real estate lawyer with estate planning experience, before opting for this form of property ownership. At Nazarian Law, we are well-versed in real estate and can help you comprehend these nuances, providing guidance for the best course of action tailored to your situation.

What is Tenants-in-Common Ownership in Real Estate Transactions?

Tenancy in common is a form of joint property ownership where individuals or corporate entities hold separate and distinct shares of the same property. These shares can be equal or unequal, making it flexible and accommodating to varying circumstances. The key characteristic setting tenancy in common apart from joint tenancy is the lack of a right of survivorship, which means a tenant in common’s share does not automatically transfer to the surviving owner(s) upon their death.

Let’s examine the advantages and disadvantages of this form of ownership.

Advantages of Tenants in Common:

• Flexible Ownership Shares: Tenants in common can hold unequal shares in a property. This flexibility allows for tailored ownership arrangements, making it possible for one party to hold a 70% interest, for instance, while another holds the remaining 30%.
• Independent Transactions: Each tenant in common has the right to force the partition or sale of their interest to the property at fair market value subject to equitable considerations.   
• Separate Inheritance: A tenant in common can bequeath their share to a beneficiary of their choosing in their will. The beneficiary will receive rights essentially identical to those of the deceased owner.

Disadvantages of Tenants in Common:

• No Survivorship Rights: Unlike joint tenancy, tenancy in common does not provide the right of survivorship. This means that upon an owner’s death, their share does not automatically transfer to the surviving owner(s). Instead, it becomes part of the deceased’s estate and is subject to probate, which can sometimes be a lengthy and complex process.
• Potential for Conflicts: The independent nature of each tenant’s share can potentially lead to disagreements or conflicts over the property’s use, maintenance, or disposition.

Tenancy in common offers unique benefits, such as flexibility in ownership percentages and independent control over one’s share. However, these benefits come with their own set of complexities and potential drawbacks. Like any form of property ownership, a careful evaluation of all aspects is advised before entering into a tenancy in a common arrangement. Our experience in real estate law and estate planning can offer valuable insights that can guide you toward an informed decision that best aligns with your needs.

Summarizing the Difference Between Joint Tenancy and Tenancy in Common

At the core of distinguishing between joint tenancy and tenants in common is the nature of ownership each confers. The joint tenancy offers each owner an equal and undivided share in the entire property. In contrast, tenants in common have distinct fractional shares of the property, each corresponding to their specific ownership interest.

This difference in ownership structure can have significant implications for property rights and responsibilities, making it crucial to understand before deciding on a joint tenancy or tenancy in a common arrangement.

Factors to Consider:  Joint Tenancy vs Tenancy in Common

Here are some factors to consider:

• Survivorship: With joint tenancy, there is a right of survivorship, meaning that if one owner dies, their interest in the property automatically passes to the surviving joint tenants, irrespective of what their will says. However, with tenancy in common, there is no right of survivorship. When one tenant dies, their interest in the property is passed on according to their will or by intestate succession if there’s no will.
• Equal vs Unequal Shares: Joint tenants each hold an equal interest in the property. If there are two joint tenants, each holds a 50% interest; if there are three, each holds a one-third interest, and so on. On the other hand, tenants in common can have unequal shares, such as one tenant owning 70% of the property and another owning 30%.
• Individual Freedom: Tenants in common have more freedom to deal with their shares independently. They can sell, gift, or otherwise dispose of their share without the consent of the other co-owners. On the other hand, joint tenants usually can’t sell or transfer their individual interest without the approval of the other joint tenants.
• Potential Conflicts: Joint tenancy may result in potential conflicts between co-owners if one of them wants to sell their interest in the property but the others don’t.
• Estate Planning Considerations: Joint tenancy can be an effective estate planning tool because it avoids probate for the property. However, it can also unintentionally disinherit certain family members if a joint tenant dies and their share goes to the other joint tenant(s) rather than their heirs.
• Tax implications: Depending on your jurisdiction, there may be different tax implications for joint tenancy vs tenancy in common, particularly regarding inheritance taxes and capital gains taxes.
• Lenders: Financial institutions may have different evaluation standards for joint tenancy and tenants in common and may require that co-borrowers own title by way of joint tenancy in order to secure the lender’s interests. 

Remember, the choice between joint tenancy and tenancy in common depends largely on the specific circumstances of the co-owners, their relationship, and their intentions for the property. Therefore, it’s essential to seek legal advice before deciding.

How to protect yourself in Co-Ownership arrangement

To protect yourself in a co-ownership arrangement, it is crucial to sign a  co-ownership agreement. 

This document clarifies the rights and responsibilities of each co-owner, serving as a protective measure in the event of disputes. Furthermore, a well-drafted co-ownership agreement can enhance your application for mortgage financing from financial institutions. As such, seeking professional legal advice from experienced firms like Nazarian Law is highly advisable to ensure your co-ownership agreement is comprehensive and accurate.