Joint tenants vs tenants in common: What’s the difference?

Ownership in real estate may be held in a number of different ways, each with its own set of attendant pros and cons which dictates how the property is divided, transferred, or transmitted upon death. 

Two of the most common are joint tenancy and tenancy in common, each with different implications regarding issues such as inheritance, rights of survivorship, and financial responsibility for co-owners.

Understanding these differences is important, especially among experts in real estate, property investors, and potential co-owners, when choosing the best structure that would suit their needs.

What is joint tenancy?

Joint tenancy is a form of co-ownership that grants equal rights and ownership shares to all co-owners, also known as joint tenants. One of its most defining features is the right of survivorship—if one joint tenant passes away, their ownership interest transfers automatically to the surviving joint tenants rather than becoming part of the deceased’s estate. 

This feature often makes joint tenancy attractive to married couples and close family members.

Example: Imagine Sarah and her brother John purchase a home as joint tenants. They both own equal shares of the real property. Should John pass away, Sarah would automatically become the sole owner, without the need for probate.

Legal aspects and requirements of joint tenancy

Joint tenancy requires specific legal requirements, often summarized as the “four unities”:

1. Unity of time: All owners must acquire their interest simultaneously.
2. Unity of title: All co-owners must have obtained their interest in the same deed or document.
3. Unity of interest: Each owner has an equal interest in the property.
4. Unity of possession: All co-owners have an equal right to possess the property.

If any of these unities is broken, such as if one tenant sells their interest, the joint tenancy may automatically convert to a tenancy in common for the remaining owners.

What is tenancy in common in real estate?

Tenancy in common, or TIC, is another form of co-ownership but differs from joint tenancy in its flexibility. In this structure, co-owners can have unequal shares of the property, allowing one owner to hold a larger stake than the others. 

Unlike joint tenancy, tenancy in common does not include the right of survivorship. When a tenant in common passes away, their share is inherited by their heirs or beneficiaries, not the other tenants.

Example: Sarah, John, and their friend Alex decide to buy a rental property together as tenants in common. Sarah invests 50%, John 30%, and Alex 20%. If Alex were to pass away, her share could be passed to her designated beneficiaries, who may not necessarily be Sarah or John.

Joint tenancy vs Tenancy in common

Joint tenancy vs tenancy in common are two fundamental forms of co-ownership of real estate, but they present key differences that significantly affect the rights and obligations of the owners.

First, the main difference lies in the manner in which ownership shares are held. In joint tenancy, all the owners share equal shares of the property regardless of the contribution each made towards the purchase of the property. However, in tenancy in common, each owner may have a different percentage share, which represents their individual contribution to the property. This makes tenancy in common a more flexible option for people who do not wish to split ownership equally, such as friends, business partners, or relatives with varying levels of financial contribution.

The second significant difference is the right of survivorship. In joint tenancy, upon the death of one of the co-owners, their share of the property automatically passes on to the surviving owners without the need for inheritance processes or a will. In contrast, in a tenancy in common, the deceased owner’s share does not automatically go to the other co-owners but is part of their estate and divided according to their will or the state’s intestacy statute, which could lead to conflict or complications between heirs and co-owners.

Additionally, joint tenancy vs tenancy in common differ when it comes to the freedom to dispose of ownership. In a tenancy in common, each owner has the freedom to sell, transfer, or mortgage their share without needing consent from the other co-owners, allowing them to maintain control over their investment.

However, in a joint tenancy, usually, owners must unanimously agree to divest the property, and even the sale of one owner’s interest can terminate the joint tenancy, converting it automatically to a tenancy in common.

Finally, the impact on probate is another major difference. Joint tenancy avoids probate due to the right of survivorship, which speeds up the transfer of ownership and reduces legal costs. In contrast, tenancy in common requires the deceased owner’s share to go through probate, which can delay asset distribution and incur costs for beneficiaries.

For all these reasons, joint tenancy is common among spouses or kin who desire to keep property in the family and simplify inheritance, while tenancy in common is most suitable for business partners, acquaintances, or investors who wish to have independence over their respective interests and protect their distinct rights.

Practical implications of right of survivorship

The right of survivorship is thus an important point of distinction in joint tenancy and very often an important determining factor for those opting for this form of ownership. For example, where spouses own real estate jointly when one of them dies, the other automatically owns the property outright without any need to go through probate, which is lengthy and costly. 

On the other hand, a tenancy in common is a relationship between parties such that each owner’s share needs to pass through probate upon the owner’s death and by the will or intestacy laws of the state, which sometimes leads to unexpected changes in ownership.

Example: Imagine Anne and Mark are married joint tenants. If Anne dies, the right of survivorship automatically gives Mark full ownership of the property. 

However, if this were a tenancy in common for Anne and Mark, then Anne’s share would go to her heirs, perhaps children from a previous marriage, which would then complicate Mark’s continued ownership.

Estate planning with joint tenancy and tenancy in common

When choosing between joint tenancy and tenancy in common, estate planning plays a significant role.

• Joint Tenancy: Offers simplicity in estate planning, as the right of survivorship bypasses probate. This is beneficial for those wanting to streamline the inheritance process.
• Tenancy in Common: Allows each owner to designate beneficiaries, providing flexibility. However, it may lead to complexities, such as shared ownership among parties who may not know each other well.

Can a tenant in common sell their share?

The advantages of tenancy in common are greater flexibility for each owner. Tenants in common are free to sell, gift, or otherwise convey their share without needing or getting the consent of the other owners. This makes it suitable for business partnerships or investors who are likely to liquidate their ownership shares at some point in the future. 

On the other hand, joint tenants are generally not considered to have a ‘right’ to independently sell shares without changing the ownership structure.

Tax implications of co-ownership

Ownership type also affects property taxes and other tax liabilities. When one joint tenant passes away, the surviving tenant often receives a “stepped-up” basis, meaning the property’s value is adjusted to the market value at the time of the original owner’s death. This can result in potential tax savings when the property is eventually sold.

With tenancy in common, however, beneficiaries who inherit a share of the property may not receive this stepped-up basis, leading to higher potential taxes upon sale. Consulting with a tax professional can provide clarity on how each ownership structure impacts long-term tax obligations.

Legal challenges and disputes in joint tenancy vs. tenancy in common

Property co-ownership, while beneficial in many ways, can sometimes lead to disputes between co-owners. For example, if one tenant in common wishes to sell their share while the others do not, disagreements can arise. Understanding legal recourse, such as partition actions, can be essential:

• Partition actions: In cases where tenants in common cannot agree, one co-owner can initiate a partition action, a court-ordered division or sale of the property. Courts may order the sale of the property and split the proceeds among co-owners based on their ownership shares.
• Joint tenancy termination or property severance: If one joint tenant decides to sell or transfer their interest, it usually results in the termination of joint tenancy. This change would then convert the remaining co-owners’ structure into a tenancy in common.

These types of legal challenges underscore the importance of clear communication and pre-agreed terms among co-owners, especially for tenants in common where shares can be unequal.

Advising clients on co-ownership: what to keep in mind

A real estate professional should consider the following factors when advising a client about which form of co-ownership serves the client’s best interest: First, determine the goals of the clients. Family legacy-pure joint tenancy is optimal since the right of survivorship would allow automatic passage of title on death. Clients who wish to have flexibility in investments will find tenancy in common allows them to convey their share independently.

After that comes the consideration of financial issues: tenancy in common has unequal shares of ownership, which would be beneficial in a partnership where the owners’ investments are unequal. It is also important to point out that they both incur financial costs; however, tenancy in common does have options when it comes to customized expenses based on the ownership percentage:.

Another critical area is the legal implications. Joint tenancy avoids probate, which is one of the reasons couples are attracted to it, while tenancy in common offers more flexibility with regards to inheritance planning.

Lastly, clear co-ownership agreements must be established and laid down to set the guidelines and reduce potential disputes, especially for situations of tenancy in common where the ownership interests may vary.

Final thoughts

In summary, choosing between joint tenancy and tenancy in common depends on goals, relationships with co-owners, and future plans. 

Joint tenancy suits those who want to avoid probate and prefer a streamlined ownership transfer, such as spouses or family members.

Tenancy in common, however, is often the preferred choice for friends, investors, and business partners due to its flexibility in ownership shares and inheritance. 

Real estate professionals can provide invaluable advice, helping clients choose the arrangement that best aligns with their needs and long-term plans.

If you’re preparing for your real estate licensing exam, mastering these concepts is essential, and Lexawise’s resources offer extensive tools to enhance your knowledge and boost exam readiness.