This article looks at the topic of tenancy in common and the different forms of property ownership.
First, we answer the question, “What are tenants in common?” And then look at some other forms of tenancy which are in common use today.
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Tenants in common TL;DR
Tenancy in common is a term in tenancy law referring to an ownership arrangement between two or more parties.
The co-owners may own equal shares or unequal shares in the property, however, in this form of tenancy each party is free to sell their share of the property to other parties.
If one owner dies, their share of the property becomes part of their estate. The inheritor of the property can then become a new tenant. Alternatively one of the other owners may choose to purchase that share instead.
Tenants In Common – Overview
Tenancy in common is a terminology in tenancy, specifically relating to a particular form of property ownership.
If you enter into an agreement to buy a property with someone else, there are two common forms of tenancy, tenancy in common and joint tenancy.
Typically, if you purchase a property with someone, it will be classified as tenancy in common, unless you have a close relationship with them – i.e. if you are a married couple- then the type of tenancy will default either to tenancy in common or joint tenancy.
Ultimately it comes down to the local property law where you are based. In the US, for example, two different states may interpret the law in different ways.
Knowing and understanding your tenancy type is important, however, since tenancy in common and joint tenancy have different legal ramifications.
The specific nature of your tenancy will therefore have an impact on whether or not you are able to sell your share of the property to a third party, for example.
Similarly, your tenancy status will also dictate what happens to your share of the property after you die.
Common Forms Of Property Ownership
There are more ways of owning property than you might realise and it’s important to understand the distinctions, especially if you are entering into agreements to purchase a shared property.
So let’s look at some of the more common ways to own property.
Tenancy In Common
This is generally the default ownership type for two or more people entering into a property agreement (unless they are married.)
Each tenant owns a portion of the property and is free to resell that portion to third parties.
For this reason, tenancy in common is usually the default tenancy status for tenants who are not related, for example, they may be co-investors in a property deal.
With a tenancy in common agreement, when one owner in common dies, their ownership interest passes to their estate. The other tenant does not have any rights to that portion of the property unless it has been otherwise stipulated by the deceased tenant’s estate.
Joint tenancy is another commonplace form of tenancy where two or more people own a property. Generally, this type of tenancy is held by two people with a close relationship.
Unlike what happens with tenants in common, in joint tenancy, if one tenant dies, their ownership rights pass to the surviving party, or parties, involved. For this reason, joint tenants tend to be closely related.
Being a joint tenant, therefore makes more sense for someone who shares ownership with a family member, whereas having shared ownership of a property with a business partner is better suited to tenancy in common.
For example, it is common for couples who are married to purchase property together. Then, if one spouse dies, the surviving spouse inherits the ownership of their share of the property. However, there also exists a special form of ownership for married couples, known as entirety tenancy.
This form of ownership is similar to joint tenancy, but specific to married couples.
With tenancy by the entirety, each of the owners has equal rights to the property and can hold an equal interest in it.
The key difference, however, is that, rather than splitting ownership between, both parties jointly own the property outright, as a single legal entity.
The specifics of this type of ownership vary from state to state. Some may recognise partners or civil partnerships, though generally it is recognised for couples who must be married prior to purchasing the property.
As with joint ownership, in tenancy by the entirety, the interest of the deceased tenant passes directly to the surviving owner who then becomes the sole owner of the total property. In this way, it is a slightly neater option for married couples, which also helps to avoid probate.
Tenants in common – Pros and Cons
A tenants in common arrangement allows for flexibility in terms of the interest each owner has in a property.
Tenants in common can own an equal or different percentage of the property, and two or more parties can share ownership.
When one owner sells his or her share, other tenants are free to buy that interest in the property.
And when a tenant in common dies, their interest is passed along to their estate, though it may be possible for one of the other tenants to purchase that interest from whoever eventually inherits the deceased owner’s interest in the property.
In other words, the pros and cons of being tenants in common largely depend on your relationship with the other tenant or tenants and the type of legal arrangement you wish to have.
A tenants in common agreement is generally better suited to business partnerships while joint tenancy is better suited for family members since when one joint tenant dies their interest in the property passes to the other tenant.
So obviously if you’re in a business relationship you want to be free to sell your interest in the property if you so wish and you certainly don’t want the other owner or other owners to inherit your interest when you die. This is why you should have a common ownership agreement instead.
If you don’t own the entire property – get proper advice
The above information is provided just to give you a basic understanding of how tenancy in common works and some of the other more common forms of tenancy.
Other arrangements also exist, and it’s important to get a grounding in property law if you invest, or if you’re looking to start investing, in real estate.
This is especially important if you are looking to invest in foreign real estate and it’s one of the main reasons people choose not to take advantage of the huge gains to be made in foreign markets.
But as a Nomad Capitalist client, we have detailed, working knowledge of global property markets and access to a network of experts around the world. So you can invest like a local in global markets, with the confidence that comes from knowing you’re getting the best deals.
Tenants In Common FAQ
The main difference between tenants in common and joint tenants is in ownership interests.
Firstly, with tenancy in common, a tenant can freely sell their share in the property to another party.
Secondly if one of the owners dies, then their share becomes part of their estate, rather than being passed along to the surviving tenants.
Joint tenants, on the other hand, have a very different arrangement. With joint tenants, ownership passes directly to the other joint tenant after one joint tenant dies.
In this way, joint tenants are generally family members, rather than business partners. Married couples, for example, may decide to own a property as joint tenants, or then again they may instead opt to own opt for an entirety tenancy agreement.