The difference between ‘joint tenants’ and ‘tenants in common’

Buying a house

As experienced property conveyancers, it’s our job to inform our clients of their legal obligations and rights when they are purchasing a house. This is even more critical when there is more than one person involved.

If you’re thinking of buying a house with someone, your situation will fall under one of these two umbrellas: ‘joint tenants’ or ‘tenants in common’.

Joint tenant

This is when two people have equal ownership of a property. Typically, this is the option for spousal relationships.

When you co-own a property as joint tenants, if one spouse passes away, the house is automatically left to the surviving spouse. No questions are asked, no wills are involved and there are no legal issues: it’s a straight ownership transferral. It’s called the ‘right of survivorship’.

However, there can be a downside to joint tenancy. Here’s a scenario based around the context of first homeowners:

A male and female couple buy their first home with the help of their parents as guarantors. They both own the house equally. Unfortunately, the male passes away, which means the ownership of the house goes to the female. The male’s parents may find themselves in a potentially messy situation where they are at risk of losing their equity.

On the other hand, if the couple decide to divorce, dividing their assets equitably can become quite complicated.

Tenants in common

Imagine a dotted line that runs through the centre of the house. One party owns everything on the left and the other party owns everything on the right.

In this instance, two or more people can co-own a property in equal or unequal portions. If a person within this agreement decides to sell their share or dies, their portion of the house will be left to whomever they nominate in their will.

This option is often recommended for younger couples, siblings, friends and business partners.

It can be an awkward conversation to have: ‘What if we break up?’ or “What if I decide to bail out of this agreement?’ But tenants in common agreements protect your own, and a guarantor’s, investments.

Here’s another scenario based on people wanting to buy an investment property or to utilise their investment as a business risk management tool:

A husband and wife are looking to buy a second house. The wife is a sole trader, and the husband is employed by a local company. The couple decided that they will be tenants in common and the wife would own 1% of the house and the husband would own 99% of the house. Why? To protect their assets. If someone wanted to sue the wife, because her sole tradership exposed her to more threats, they would only be risking 1% of the house. If the couple were in a 50/50 ownership agreement and the wife was sued, they could lose half of their house.

Note: if you do not specify otherwise, the purchase will default to joint tenancy. You can also choose to change from tenants in common to joint tenancy later on and without refinancing.

Our top tips

• Plan and have those awkward ‘what if’ conversations if you’re considering joint tenancy.
• Build a comprehensive legal and financial picture with a team of experts behind you. Talk to your accountant, financial planner, mortgage broker and conveyancer to get the best advice.
• Writing a will is smart. Whatever tenancy option you choose, we recommend having a will drawn up.
• Ask as many questions as you need to understand the process.
• If you still don’t understand, keep asking questions. We want to make sure that you’re making the right decision for you.
• Take time to make the right decision. You have up until the settlement stage to choose your preference.