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Tenancy in common or joint tenancy?

The difference between ‘tenancy in common’ and ‘joint tenancy’ is one of the most common questions a conveyancing lawyer gets asked. However, what people generally want to know is which option is best for their particular situation. Below is a brief explanation of the difference, some common scenarios and how they are dealt with. 

Why do I need to know the difference?

If you are buying a property with another person, be it a spouse, friend, family member or collective, you will need to choose between the two. The most important differentiator is what happens when one of the owners dies. 

Tenancy in common

This is the most common form of tenancy and allows assets to be transferred as per the instructions in each owner’s will.

Joint tenancy

In the case of one of the owners passing away, a joint tenancy allows the property to transfer to the surviving owner(s).

Scenarios

These are some of the most common scenarios we see and how people deal with them. However, you should always discuss your particular situation with a property lawyer to ensure you make the right choices.

1.    You want to protect your children’s rights to the property from a future spouse

To make sure that if the unfortunate happens, your share of the property goes to your children (or other specified beneficiaries) instead of your spouse’s hypothetical new partner, tenancy in common is the right choice for you. Just make sure your wishes regarding your assets are clear in your Will.

Tenancy in common gives your children:

  • The right to sell and buy an alternative property or properties,
  • The right to build an alternate property, and
  • The right to use the proceeds of sale and enjoy the income during their lifetime.

This means that a future spouse or partner cannot benefit from at least half of the house.

2.    You are a group of friends buying a property or shares together

Groups will normally use tenancy in common to ensure their shares remain their own.

3.    Both parties already have family trusts

Family trusts are commonly used to protect assets either received by way of inheritance or the person’s share of a relationship property settlement.

Where both parties to a new relationship or marriage have existing family trusts and subsequently buy assets together, each of the trusts will own their share under a tenancy in common.

4.    You want your children to eventually own the property, but your spouse can keep using it

As with scenario #1, tenancy in common will enable your children to own the asset. Each party, under their Will, can provide for the surviving spouse or partner to have the use and enjoyment of their half of the house during the surviving spouse or partner’s lifetime.

5.    You want to deal with the house and its contents differently

In this scenario it is possible to have the house held as tenants in common, and the other assets (e.g. furniture, car, bank account) as held in joint tenancy. This means that children/those specified in the Will retain the right to the property, and the other assets pass on to the surviving partner.

There can also be specific time limits set in either tenancy in common or joint tenancy. For example, the surviving spouse could own the house for 10 years before it transfers to the children.

6.    You and your business partner are buying property

When buying a commercial property with your business partner, the typical scenario is to hold the property as tenants in common, with shares in the property in proportion to the overall shares in the business partnership.

Note this approach is not necessary in a company structure as the asset is owned by the company and thus owned via company shares.

Is the decision forever?

No. You can get out of a joint tenancy (or switch between them) in a number of ways:

  1. Unilaterally converting ownership – switching from one type to the other by mutual agreement.
  2. Bankruptcy – this automatically severs a joint tenancy agreement.
  3. Mutual termination agreement – both parties can mutually agree to terminate an agreement.

What if both parties pass away at the same time?

If both parties pass away at the same time in a joint tenancy scenario, the Simultaneous Deaths Act 1958 converts the joint tenancy into a tenancy in common in equal shares, meaning they are then part of each tenant’s estate.

For most people, the family and holiday homes will be the major asset or assets of a relationship. It is important when buying those assets to make a clear decision as to what happens when the owners pass away. Estate planning goes hand-in-hand with this decision, so it’s vital your intentions are also made clear in your will.

These decisions are not easy ones, and getting the legal wording right can be tricky. Home Legal provide conveyancing and property law advice in Wellington, Lower Hutt and Upper Hutt. Don’t hesitate to get in contact to discuss your situation and make sure your assets are protected and passed on in the way you intend.