When two or more people are buying a property it is important to identify which ownership structure will be used. Will you be a tenant in common or a joint tenant?
I am a Joint Tenant. What does that mean?
If you are a joint tenant then you and the other owners will have an equal interest in the property. Joint tenancy creates a right of survivorship whereby in the event that a joint tenant dies; the surviving owner will take full ownership over the property. It also means your part of the property cannot be sold or given way without the agreement of all owners.
I am a Tenant in Common. What does that mean?
If you are a tenant in common then you and the other owners will have a stipulated ownership percentage; for example one person may have 25% ownership and the other person may have 75%. This ownership structure is often used when unrelated parties (i.e. friends, business partners) have pooled their funds together to purchase a property, but can also be used by married couples. In the event of a party’s death, their estate will continue to own the percentage of the property. This ownership structure is regularly used when there are unrelated parties or to take advantage of different ownership percentages for tax purposes.
E.g. A couple own a rental property which results in a net loss with one spouse earning considerably more than the other. For a greater tax benefit, it may be beneficial if the higher earning spouse claims more of the rental loss. Therefore, having a tenants in common ownership structure would be ideal so as to allocate a larger percentage of property ownership to the higher earning spouse in order to claim more of the loss. Under a joint tenant structure, the couple would share the net rental loss equally.
To change tenancy, we recommend receiving legal advice.
To remember the difference I use the saying – tenants in common – the only thing they have in common is the property so percentage of ownership must be stated (not necessarily true but an easy way to remember the difference).
Author: Allan Edmunds