Tenants in Common vs Joint Tenancy: Which is Better?

Joint tenancy is a type of property co-ownership structure that allows two or more people to own an undivided interest in an estate, such as a fee simple estate or interest in a property. The primary benefit that joint tenancy ownership provides is the rights of survivorship.

What is Joint Tenancy with Right of Survivorship Mean?

Joint tenancy with the right of survivorship means that if one of the owners dies, their shared interest automatically transfers to the others left on the title. For example, if a husband and wife purchased a property under the joint tenancy fee simple ownership as 50/50 owner of the property. If one of them were to die, the other would automatically become the sole owner of the entire property.

This is a great feature as it enables the remaining spouse to get full ownership without having to sell the property, which may trigger a capital gains tax. The feature of automatic transfers also means you cannot give away your interest in the property by a will.

For example, if a couple owned a property as 50/50 joint tenancy fee simple they can’t give away their interest to another person through their will.

How do you set up a Joint Tenancy?

In order to create a joint tenancy, you first need to purchase a property for which such an ownership structure of land is possible. If that’s the case, you also need to ensure that the four unities below are present and continue to be valid throughout the time you own the property.

• Unity of Interest
  • This simply means that all parties must have the same equal rights to the property. One party cannot have more rights than another person.
• Unity of Time
  • All owners receive their interest at the same time. This is usually met by the fact that the title is registered at the same time for everyone who will be listed as the joint tenancy owners.
• Unity of Title
  • Each owner receives their interest in the property in the same manner. This will likely be fulfilled during the property registration with a lawyer or notary.
• Unity of Possession
  • You can’t create restrictions or exclude any part of the property from the other co-owners. Everyone needs to own and be able to access the property equally.

While there are four unities, once the property has been acquired, only three of the unities must always be present. The three unities that must always be present are possession, interest, and title.

How to Cancel a Joint Tenancy

It’s possible to cancel a joint tenancy, but there may be tax and legal consequences to cancelling a joint tenancy. A joint tenancy may be cancelled by way of;

• By court order
• Co-owners decided to cancel it themselves
• The sale of property

If you plan on cancelling a joint tenancy by way of removing someone from the mortgage, which in turn removes them from the title. Be aware that you must ensure you can qualify for the mortgage yourself. A lender isn’t likely to accept the removal of a strong borrower unless the remaining borrower is able to show they can handle the mortgage payments and qualify for the amount.

What is Tenants in Common?

A tenancy in common is a type of fee simple co-ownership structure in which two or more people can own a separate proportion of a property. Unlike a joint tenancy, tenancy in common does not have the right of survivorship. This means if one person were to die, their share of the property doesn’t automatically get transferred to the other property owners. Furthermore, only one unity is required; possession.

This type of tenancy is best for individuals who do not wish to have their property interest share automatically given to the remaining owners.

How to Cancel a Tenancy in Common

Cancelling a tenancy in common is similar to cancelling a joint tenancy. A tenancy in common can be cancelled by court order, one of the owners selling their interest to another owner, or the collective group of owners selling their entire interest to another individual or group jointly.

The critical thing to keep in mind with this structure is there is no survivorship right, and if one of the owners sells their interest to someone else, it doesn’t terminate the tenancy in common for the other. Suppose, for example, three people purchased a property together, and one decided to sell their interest in the property to a new party. In that case, the other two existing owners will now become tenants in common with the new owner.

As such, you want to ensure you know who you are dealing with, as each owner can sell their respective share to someone else without the consent of the existing owners or sell their shares through there without the permission of the others.

Which Should You Pick?

The decision to select joint tenancy or common tenancy comes down to each person’s unique situation. For married couples or individuals who wish to have their shared interest automatically given to the other owners, joint tenancy is likely the best structure.

A tenancy in common is a great option to avoid your share of interest automatically going to the owners or enabling you the ability to transfer your interest share through a will. For example, a divorced person with a child from the previous marriage who remarries might not want their shares of the property to go to their spouse automatically but would rather have their share go to their child to ensure the child is not left without anything. If they selected a joint tenancy, the child would not be entitled to the property as their share of the property would automatically go to the new spouse.

It’s why the best structure ultimately comes down to understanding your specific situation and needs, which will make it easier to determine which type of property ownership structure will work best for you.