Joint Tenancy vs Tenants In Common? Know Your Ownership Before You Get Owned.
For the majority of New Zealanders, knowing that you own your property is usually enough, without worrying too much about the intricacies of how that property is actually owned. While there are many different forms and structures for owning real property in New Zealand, this article will focus on property owned in personal names, whether it be one or two people, or perhaps even more.
However, owning property in your personal names is only the first of two steps. The second of these steps is determining whether your ownership of the property is to be as Joint Tenants or as Tenants in Common. Despite the fact that these terms appear to be related to someone renting accommodation as a tenant under a lease, these terms have very technical meanings which are very important in structuring how your property is actually owned.
Joint Tenancy In New Zealand
The first form of ownership is by Joint Tenancy. The essence of this ownership structure is that no matter how many people may be on the property title, they all own a proportionate undivided share of the whole property.
Under a Joint Tenancy, should anything happen to one of the Joint Tenants, the property automatically passes to the survivor or survivors. This form of ownership has been the most prevalent in New Zealand over many years, and it is only recently with the rise of differing contributions from the family unit and particularly funds for a purchase of property coming from less conventional sources that a Joint Tenancy may not work for your particular form of ownership.
Owning your property as Joint Tenants with other people, also means that you do not have an individual share which you may interact with, and any transaction or work involving the property, inevitably requires the agreement of all owners. Owning your property as Joint Tenants can be a way for some people to secure their house, so that their partner would not have any problems with staying in the property should anything happen to them. Upon one partner’s death, the property would automatically revert to the survivor, and no paperwork would need to be filled out, nor would any other family members or other interested parties be able to interfere in the ownership of that property. However, a Joint Tenancy is not for everyone, and in our modern world of ever changing circumstances and financial arrangements, owning your property as Tenants in Common may be more appropriate.
Tenants In Common
Owning your property as Tenants in Common means that all people own the property jointly, but in equal for possibly unequal shares. Historically, Tenants in Common was used as an ownership method where the buyers were in a de facto relationship possibly following separation or a previous relationship, were business partners, or were buying as friends or with family members.
The advantage of owning a property as Tenants in Common is that any property owner may leave their share in the property under their own will to another person of their choice. The owner has the full right to deal with their share as they see fit. Owning a property as Tenants in Common also means that the exact financial contribution put by each party towards the property can be recorded on the Title. The benefit to this structure is that as mentioned above, you retain as property owner the right to deal with your share as you wish, as it is not automatically transferred to the other surviving owners upon your death. There is of course nothing to stop the owner of a share from leaving to the surviving owners their own share in the case that they die, but the option is theirs and if the property owner does die their share will pass in accordance with their Will.
Consequently, it is important when buying a property as Tenants in Common that all property owners having a share in the property have and keep up-to-date Wills accurately recording their wishes in respect of their property. This is not merely for the benefit of the property owner who has passed or their estate, but in the event that a property owner has passed and not left in their Will an accurate description of what they intend to happen with their share, the surviving property owners may have a problem with dealing with the property itself as the deceased property owner’s estate might have to be dealt with by the court, delaying any anticipated works or sale of the property in question.
However, even if you own your property as Tenants in Common, the structure itself without any further negotiation or arrangement leaves complete power in the hands of each individual shareholder. Every property owner having a share in the property has the ability at any time to transfer their share to any other person, or even to mortgage their share without the knowledge of the other property owners. Accordingly, we would advise putting in place a Property Sharing Agreement, detailing the obligations and expectations on each party owning a share in your property.
Property Sharing Agreement
The Property Sharing Agreement is a document commonly signed up at the same time as purchasing your property as Tenants in Common, which details which parties are going to pay for what outgoings, expenses and maintenance, and how the property will be dealt with in the event of one party wishing to sell their share or even the death of a party owning a share in the property.
Take for example, the situation of a parent wishing to help children out with the purchase of their first home. The parent might put in a tenth of the purchase price to the property – and accordingly one-tenth of a share in the property itself, leaving nine-tenths to the children. Although the ownership structure on the Title seems clear, it is not clear on the face of it who will be meeting mortgage repayments, rates, insurance and any ongoing maintenance costs. Commonly a Property Sharing Agreement would clearly set out who is responsible for these costs and in what circumstances that may change.
Another example may be where two people are looking at buying their first home. The couple are intending on meeting mortgage repayments and all other expenses equally, although in the purchase of the property they are contributing unequal amounts. ‘A’ is withdrawing $30,000 from her Kiwisaver and has $10,000 in savings, while ‘B’ has $5,000 from his Kiwisaver and $5,000 from his savings. A Property Sharing Agreement could set out that while all ongoing maintenance, mortgage, rates and insurance costs and any other outgoings are to be met by the parties equally, that upon any sale of the property the parties are to have returned to them first before any equity is to be distributed, the amounts that they each contributed to the property purchase on sale.
For some people the amount itself back may be sufficient, while others may wish to protect a certain percentage of the property based on the proportionate share that they have contributed unequally. While a Property Sharing Agreement as detailed above would work for friends purchasing together, or business partners owning property together, it may not be appropriate in all situations particularly given the effects of relationship property law and any family protection legislation.
Relationship Property Legislation & Protecting Your Interests
In some circumstances when buying property, it may be possible that other legislation or law is existing in the background or overarching any agreement you may come to between yourselves as purchasers of property. This is particularly true of relationship property legislation, and where you are looking at purchasing as a couple, particularly as either a second marriage with children from a previous marriage, it may be necessary to enter into a contracting out agreement in order to protect your interests for either your children or other family or interested parties.
In a similar vein, it may be possible that as an owner of property you wish for your spouse or significant other to always have the ability to live in the property and to enjoy its benefit, but that eventually you would like the asset to pass to your children. While typically this is something dealt with in your Will, which is mentioned above, should always be kept up-to-date and accurate. It is important that the ownership structure of your property adequately provides for any intention that you may have in respect of dealing with the property.
As you will see from the above, there are many and varied circumstances in which people find themselves when purchasing property or even their first home, and one of our HomeLegal lawyers would of course be happy to discuss your exact situation with you prior to making the purchase.