Join Australia's most dynamic and respected property investment community

What is the difference between tenants in common and joint tenants?

Discussion in 'Legal Issues' started by Ian Macleod, 21st Dec, 2015.

  1. Ian Macleod

    Ian Macleod Active Member Premium Member

    Joined:
    17th Dec, 2015
    Posts:
    27
    Location:
    NSW
    The two main types of co-ownership in Australia are:-
    • Tenants in common; or
    • Joint tenants.
    When you purchase a property with someone else, you can nominate how your interest in the property will be held: either as joint tenants or tenants in common. This will be recorded on the Certificate of Title.

    Whether you elect to co-own as tenants in common or joint tenants, will depend on your situation and who you will co-own your property with. You can co-own real estate with:-
    • your spouse – the most common form of joint tenancy is as between couples;
    • your family (parents, children or siblings) – most often as tenants in common;
    • your business partner – generally as tenants in common; or
    • an investment partner (who may also be your family) – generally as tenants in common.
    [​IMG]
    So what is the difference?

    In both methods of ownership, each party has an interest in the whole of the land, as opposed to a designated portion of the land.

    Joint tenancy is almost exclusively used by couples as a form of property ownership. If one of the spouse parties dies, then his or her share will pass automatically to the remaining spouse party.

    This is called a right of survivorship

    This ‘right of survivorship’ exists with ownerships of ‘joint tenancy’ only.

    There is no right of survivorship associated with tenants in common. This gives each co-owner the ability to bequeath their share of the property to a nominated beneficiary in their Will.

    Joint tenants are not able to bequeath their interest in the property in their Will – it will always go to the surviving co-owner/s. The last surviving co-owner, however, will be able to gift the property in his or her Will.

    For this reason, it is common that property held by couples in a second marriage, is held as tenants in common. This ensures that each spouse party can bequeath their share of the property to their children.

    Ability to define ownership shares with tenants in common
    Joint tenants cannot nominate ownership shares. All co-owners who hold as joint tenants have an undivided interest in the whole of the property which will pass to the surviving owner/s on their death.

    Tenants in common is a more flexible arrangement in that you can specify the ownership shares in which the property is being held. Usually this is defined as being proportionate to each parties’ contribution to the acquisition of the property.

    For example, if each party contributed equally to the property, then they would register their ownership as ‘tenants in common in equal shares’. If one party contributed 25% and the other 75% towards the property, then this arrangement would be reflected on the title. If no percentage ownership is nominated, then the property will be deemed to be owned in equal shares.

    Update your Will if you hold property as ‘tenants in common’
    Co-owners who hold as tenants in common can bequeath their share of the property in their Will to selected beneficiaries. If there is no Will, the property will be subject to state specific intestacy laws.

    Joint tenants cannot bequeath their interest in the property in their Will, as their interest will automatically pass to the surviving joint tenant.

    Severing a joint tenancy
    It is possible to alter the ownership method by completing and lodging the relevant form with the Land Titles Office.

    In particular, a joint tenancy can be severed, to create a tenancy in common.

    Divorce or separation
    Consider taking immediate steps to sever a joint tenancy if you hold property as ‘joint tenant’ with your spouse and your relationship has ended or you are in the process of separating.

    Investors or family members who co-own property together
    It is increasingly common for friends or family members to invest in property together as a means of getting into the property market. More often than not, investment property, even among family members, is held as tenants in common for the reasons listed above.

    If you have invested in property together with family, friends or business partners, consider putting in place an Agreement between Tenants in Common.

    The Agreement will set out the terms governing the co-ownership of the property, including such things as:-

    • The ownership proportions;
    • The contributions each party agrees to make towards the maintenance, upkeep and repair of the property;
    • Insurance requirements including taking out life insurance over the other co-owners so that the surviving owners can buy out their share on death;
    • What happens if a party defaults under the mortgage;
    • What happens if a party wishes to sell their interest in the land;
    • How the property can be used;
    • How will disputes among co-owners be settled – mediation and arbitration;
    • How will sale proceeds be divided if the property is sold.
    Addressing these issues upfront will help ensure the relationship between the co-owners remains a success.

    This article was first published here
     
    KateAshmor likes this.
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,030
    Location:
    Sydney
    Good summary Ian.

    Generally with property investors both (JT and TIC) should be generally avoided for a number of reasons which I have outlined on here before. Single ownership is preferred.

    Keep in mind that JT owned assets should still be considered in the will in case the other JT owner dies first.

    And JT ownership can be attacked in death in 2 ways:

    1. Equity. Property owned as JT can be deemed to be actually owned as tenants in common. I know of 2 such cases, one involving 2 brothers and another involving a mother and daughter owning a commercial property as JT.

    2. Notional Estate Order under Family Provision sections of the Succession Act in NSW.
     
  3. balwoges

    balwoges Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    191
    Location:
    Lake Macquarie
    CGT payable on death of joint tenant, surviving partner has to pay. :(
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,030
    Location:
    Sydney
    What do you mean?

    For CGT JT is consider TIC 50/50
     
  5. balwoges

    balwoges Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    191
    Location:
    Lake Macquarie
    My husband and I were joint tenants of a commercial property, when he passed away I had to pay CGT when his share passed on to me, I sold the property last July and I have to pay CGT again on the difference between then and now.
     
  6. Gockie

    Gockie I'm an ISTP-A female, so I might be a bit quirky! Premium Member

    Joined:
    18th Jun, 2015
    Posts:
    4,941
    Location:
    Sydney
    Are you 100% certain you weren't actually tenants in common?
     
    Handyandy and York like this.
  7. balwoges

    balwoges Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    191
    Location:
    Lake Macquarie
    We were joint tenants.

    Site was bought by us as joint tenants 25yrs ago, we developed it into 12 small industrial units and ran it as a 50/50 husband/wife partnership business.

    It would make my day/year if you prove my accountant wrong :D
     
    Last edited: 22nd Dec, 2015
    Bran likes this.
  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,030
    Location:
    Sydney
    That is most unusual as death doesn't trigger CGT.
     
  9. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,400
    Location:
    Sydney
    I'm with Terry on that. There are two possibilities on death with ANY property.

    1. If it was a pre-CGT asset of the deceased then you inherit their share and you are deemed to have acquired their 50% interest (in addition to your existing 50% interest) on their death at the market value at time of death; or

    2. If it was a post CGT asset of the deceased then you inherit their share and you are deemed to have acquired their 50% interest (in addition to your existing 50% interest) on their death at their cost base.

    In the example of 1 above you cost base for the whole site is now on e50% interest bought pre-CGT and one 50% parcel at date of death at market value. In the example of 2. you are deemed to hold two seperate parcels both with an identical cost base (in most instances)

    I suspect you refer to the fact that your husbands share of CGT was deferred to you on his death. The trigger was your sale. If you had held it then no CGT would have arisen. In theory you could have died and left it to a beneficiary and only when they sell it would tax have become due. Any CGT is deferred until a sale of the underlying asset occurs. If you were to leave the property to a beneficiary of your estate they would only pay CGT when they actually sold it. They would inherit YOUR cost base/s as indicated in 1. and 2. above.

    I'm confused by your comment "pay CGT again". When he died you should not have paid a single cent in CGT unless you transferred his portion to a trust etc. Ditto you would have only paid a token amount of transfer duty at that time also. I have seen this before where someone thought a change from partnership to sole trader triggers CGT. Not true.
     
    Ian Macleod and Terry_w like this.
  10. JacM

    JacM VIC Buyer's Agent Business Member

    Joined:
    12th Jul, 2015
    Posts:
    1,118
    Location:
    Melbourne, Australia
    This is a great thread - maybe it can be pinned ? @Simon Hampel ?
     
  11. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,400
    Location:
    Sydney
    I always say there are four options for legal property ownership on the standard transfer form. And few ask their lawyers of the differences.

    Three are printed. One is NOT.

    1. JT
    2. TIC in equal shares
    3. TIC in some other manner ..
    and the invisible option..........

    4. Use a different structure that allows the % to be changed later without transfer duty eg a unit trust, a company etc. This may allow the legal owner to be the trustee / company but beneficial or underlying ownership interest held through shares or unitholding.
     
    Ian Macleod and York like this.
  12. York

    York Finance Broker Business Member

    Joined:
    24th Jun, 2015
    Posts:
    1,622
    Location:
    Sydney
    Excellent.
     
  13. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,030
    Location:
    Sydney
    It is also possible to have a mixture

    A, B and C

    A owns 50% TIC with (B an C owning their 50% as JT).

    2 Trustees of 2 separate trusts A Pty and B Pty owning as TIC

    (A and B) and (C and D)
    The AB group is TIC and the CD group is TIC, but sub ownership could be JT.
    A and B owing 50% of the property as JT to each other with B and C owning the remainder 50% as TIC. in this example if A dies B will own 50% TIC with B and C each owning 25%. If C dies C could leave his share to E so the ownership would then be (A and B) and (C and E). If D dies D could leave his share to X pty ltd so the ownership would be (A and B) and (C and X Pty)
     
    Ian Macleod likes this.