Joint Tenancy vs Tenants in Common: Pros and Cons

Investing in a new property is a lifetime decision, especially when purchasing the property in partnership. Besides other factors, one of the most vital aspects remains the ownership of the property.

Therefore, if you want to invest in a property with someone else, you should get acquainted with the terms like joint tenants vs tenants in common.

It helps you and your partner clearly define the property’s ownership. However, it is not as easy as it looks. Several factors, such as your needs, budgets, and relationship with the co-purchaser, drive the decision.

Homeowners often purchase comprehensive home insurance for financial coverage in case of any mishap. However, they fail to understand the complexity of joint tenancy vs tenants in common. If you are looking for tenant insurance in Edmonton, you can find top-notch quotes by reaching out to a Surex insurance advisor.

Joint tenancy vs tenants in common – why does it matter?

When you purchase a property in partnership, defining the ownership becomes imperative due to the following reasons:

• To divide the sum from the sale proceeds of the property.
• To decide the rights of ownership if one of the co-owners dies.
• To share the income from the property.
• If the owners are in a relationship, disposal of the property if the relationship ends.

What is joint tenancy?

Joint tenancy in real estate refers to a legal provision in which property rights and obligations are equally divided among owners. It includes business partners, friends, married and unmarried couples.

In this arrangement, the rights of a property are automatically passed to the surviving co-owner(s) if another owner passes away. Furthermore, it also ensures the property does not go through probate. However, no party in this arrangement can sell or pass their share in the property without the other party’s consent (s).

For example, if you and your significant other purchase a property under this arrangement and one of you passes away, the whole property gets automatically transferred in the name of the surviving spouse. Whereas, in the case of divorce, each member gets a 50% share in the property.

What is tenancy in common (TIC)?

On the other hand, a tenancy in common (TIC) is a legal arrangement in which two or more people own equal or different percentages of shares in a property. Unlike joint tenancy, this arrangement allows shareholders to sell or transfer their percentage to anyone according to their will. This arrangement is more preferred by unrelated parties like business partners.

It allows shareholders to sell their part to anyone without the consent of any co-owner.

For example, three business partners purchase a cabin with an investment ratio of 60:20:20. It means one holds 70% and two others hold 30% each. Every partner in this arrangement is eligible to sell their share. In case of death, the percentage of share is not passed to other co-owner(s) but their legal heirs or as per the owner’s will.

Joint tenancy vs tenants in common pros and cons — what are they and why are they important?

Here are the pros and cons of both these arrangements:

Joint tenancy pros

• In joint tenancy, in the event of the death of a co-owner, there is no need to claim the security of the ownership. The share of the property automatically gets transferred to the joint tenant.

• It eliminates the need to draft a will for the transfer of share in the property.

• As it is simple beneficial ownership, in the case of divorce, each one gets an equal share of the property.

• There is no need to draft a deed of trust and additional legal documents in this arrangement. Hence, you can cut costs in legal fees.

• As the ownership is equal, income from the house rental is also equally distributed amongst owners. It eliminates the need to fill the additional form to declare the percentage of the income from a rental property.

Joint tenancy cons

• Joint tenancy remains a risky choice for partners who do not invest equally in a property. For instance, if a partner invests 70% and another 30%, the ownership will be shared equally irrespective of the investment. In case of a relationship breakdown, it creates a dispute.

• As there is no deed of trust, you can not choose your terms and define your share in the property.

• After the death of a shareholder, the share gets transferred to another surviving party(s).

• It is difficult to sell a property under a joint tenancy arrangement due to the mutual consent requirement. If not agreed upon mutually, a shareholder may be required to go to court.

Tenants in common (TIC) pros

• In the event of the death of a shareholder, the share goes to their estate, not the co-owner(s).

• Unlike joint tenancy, the percentage of share is clearly defined in TIC, which means if you have invested a large sum, you get the corresponding percentage in the property.

• If a clear deed of trust is drafted, it becomes easy to sell, divide, and pass your share in the property.

• It is also beneficial for tax rebates, as each partner’s respective investments are mentioned in the deed.

Tenants in common (TIC) cons

• A shareholder needs to draft a will and execute a deed of trust to avoid future disputes.

• TIC costs much in terms of legal fees.

• If your spouse dies, their estate may force you out of the property.

• You need to fill out additional forms to declare your share of rental from the property.

Endnote

Selection between the joint tenancy and tenants in common depends upon the needs and budgets of the investor. If you want to share your rights, tax, income, and obligations equally, then the joint tenancy is the right choice for you. Whereas unequal investment, personal interests, and future expansion need a more flexible arrangement like TIC.

Make sure you go through thejoint tenancy vs tenants in common pros and cons before making a decision — whatever your choice may be, multiple tenants insurance helps protect shareholders from any untoward financial obligations.

In conclusion, do an in-depth self-assessment, analyze your balance sheet, and keep the prospects in mind to select the best option for you.