In property law, there are two types of ownership including, joint tenancy and tenants in common.

When buying a property, one of the questions you will be asked is “How do you want the property to be owned – joint tenancy or tenants in common?”

Why does it matter?

When two or more people buy a property together, they must elect to buy as either Joint Tenants or Tenants in Common (in equal or unequal shares).

How you elect to buy a property can affect:

• Tax
• Ownership of the property should one of the owners die and
• How the property is dealt with in the case of blended families.

Let’s take a look at each type and whether it suits your situation or not.

What is joint tenants?

Joint tenants are by far the most common way for two people to buy a property, usually because they are buying it as a couple.

Joint tenants relate to the way the property will be dealt with when one of the owners dies. On the death of a joint tenant the survivor, by law, automatically receives the deceased share regardless of the provisions in a will.

For example, if Fred and Mary buy a house together as joint tenants and Fred dies, Mary will automatically receive full ownership of the property.

By law, if not indicated on the contract by a tick or a cross, joint tenants are automatically selected on the Contract for Sale of Land in NSW. This is indicated on the contract by the words Joint Tenants being in BLOCK CAPITALS.

There is however a trap!

In this age of blended families often one or both have children from a previous relationship. If both property owners are killed in a car accident at the same time the law provides that the youngest joint tenant survives the eldest joint tenant and, in that moment of time, the joint tenancy property passes to the youngest joint tenant. If the joint tenants do not have wills dealing with the situation then the home would pass to the children of the youngest joint tenant, leaving the children of the eldest joint tenant with no share in the home.

So, if you are buying as joint tenants, make sure you have your will up to date.

What about tenants in common?

Tenants in common, on the other hand, allows each person listed on the Contract of Sale of Land a percentage of ownership. Known as co-owners, each has a separate share in the property that can be sold, mortgaged or left to anyone in a will. This is usually the way that unrelated parties who want their families to inherit their share hold property.

The share in the property can be any size from 1% to 99%. Separate title deeds can issue for each share, which can, in theory, although difficult in practice, be separately sold and mortgaged.

Who should use tenants in common?

Anyone is allowed to buy a property as tenants in common, but it is mostly used for people who are buying a property for investment with another couple who are not considered in a relationship. “Brady Bunch” marriages where the new couple buying the property have children to a previous marriage.

Some examples of uses of tenants in common

Buying an investment property with a friend

This scenario is perfect for Tenants in Common and is one of the reasons it is an option on a contract.

When buying with one or more friends or business partners, you can have ownership as equal shares, for example, 50/50, or you can have 99/1. There are so many factors to determine how the ownership should be noted on the contract. 

A couple who have children to a previous marriage buying a property together

It is not uncommon these days for people with children to re-marry. This can be a good reason to consider tenants in common when purchasing together.

The property can purchased as Tenants in Common, equal shares, which means that each person owns 50% of the new property.

What it then allows is for each of the buyers (in this case, two) to will their share (50%) to their children when they die.

A couple (or more people) who are buying a property but want unequal ownership

This one is sometimes used for tax purposes or borrowing purposes. In order to have the loan approved, the second person needs to be listed on the title deeds but the buyers do not want to be equal share in ownership, sometimes for tax purposes. If this is something you want to consider, we suggest you speak to an accountant as they are able to provide you with tax advice. 

Another reason for unequal ownership may be due to the fact that not everyone going on title has paid equal amounts towards the purchase of the property.

Can you change from joint tenants to tenants in common after exchange of contracts?

Yes, you can – but it doesn’t come without a cost.

If you swap from joint tenants to tenants in common, you will potentially and in most cases, you will have to pay stamp duty on the value of the property. The value of the property is determined by an independent valuer, which you need to organise and pay for.

The reason for this is Revenue NSW treats this as a sale of the property, hence why they charge stamp duty again.

Most of the time property is purchased as joint tenants. However, if you think that tenants in common may suit you better, then we suggest that you do not exchange contracts until you have spoken to us or your accountant.