When purchasing a property with one or more people, there are usually two ways to build an ownership agreement: Tenants in Common and Joint Tenants. Today let's have a look at the meaning of these two terms.
Tenants in Common
Tenancy in common describes a type of property co-ownership structure. When a property is owned by tenancy in common, this means that if one of the owners dies, their share of the co-owned asset goes to their deceased estate, and typically goes to that estate’s beneficiaries. The shares owned can be equal or unequal.
Each tenant in common has the right to deal with their share of the property separately from the others. A plus in a tenancy in common is that your shares are protected in the proportion you nominate.
Joint Tenants
Joint tenants is another type of property co-ownership structure. When a property is owned by joint tenants, this means that if one of the owners dies, the deceased co-owner’s share of the property goes to the other co-owners of that property. There’s a right of survivorship, and the property is not considered as an asset in the deceased co-owner’s deceased estate.
There are possible tax implications for both these types of co-ownership structures, according to the ATO. And there may also be legal implications. It could be a wise idea to seek professional advice, such as from an accountant or a financial adviser.
Reasons to Nominate How We Hold the Property
There are various reasons. The first reason, Your bank will need to know how you hold the property should there be a default by a party. If the property is held as tenants in common, the bank can only claim that portion of the defaulting party, not all of the parties. The second reason, the Office of State Revenue (Land Tax Division) needs to know how you hold a property. If you already own a property as a joint tenant and you own other properties as joint tenant in whatever share, you may be liable to pay land tax duty to the Office of State Revenue. If your holding of the property is clear, and you leave a valid will, then the distribution of the property is easily achieved as there is no ambiguity.
What Else to Consider?
Another important consideration that ties into the key difference between Joint Tenants and Tenants in Common is the relationship between you and the other purchasers. If you are a married couple, you may wish for your interest in the property to be directly passed onto your spouse. In that case, registering as Joint Tenants would be appropriate. However, if you are in a new relationship, or you are purchasing with a friend or other individuals, you may wish for your share in the property to be transferred to your beneficiaries later on. In that case, registering as Tenants in Common would be appropriate.
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