Joint Tenancy, Tenancy in Common, and Tenancy by the Entirety

Are you struggling to learn the different types of property ownership? Do you find it confusing to differentiate between tenancy in common and joint tenancy? And does it become even more perplexing when tenancy by the entirety enters the conversation?

You’re not alone. These concepts are critical in real estate, yet they can be challenging to grasp. Understanding them is essential for your licensing exam and future in real estate.

In this article, we will deeply dive into each type of tenancy. We are not only preparing you for your test but providing you with the skills and confidence to apply what you learn in real-life situations. We will dissect the unique attributes of each tenancy type and explore their implications in various property transactions.

What is Joint Tenancy in Real Estate?

This form of ownership involves two or more people owning property equally. The main feature of joint tenancy is the right of survivorship. If one of the joint tenants dies, their share of the property automatically passes to the surviving joint tenants, not to the deceased’s heirs or through their will. It’s a common choice for spouses or close family members who want the property seamlessly transferred to the other without going through probate.

Creation of Joint Tenancy: The joint tenancy four unities

Joint tenancy does not establish itself by default. It requires the deliberate fulfillment of four specific legal conditions, known as the ‘four unities’: Unity of Possession, Unity of Interest, Unity of Time, and Unity of Title.

Unity of Possession: All joint tenants have equal rights to possess or use the entire property. No one tenant owns an individual part; instead, each tenant has an undivided interest in the whole property.

Unity of Interest: All co-owners must have an equal share in the property. For instance, if there are four joint tenants, each must own an equal 25% interest in the property.

Unity of Time: All joint tenants must acquire their interest in the property at the same time. This simultaneous acquisition is crucial for maintaining equal status among all parties.

Unity of Title: This unity requires that the interests of all co-owners arise from the same document, such as a deed or a will. This document must clearly state the intention to create a joint tenancy.

A common transition occurs when a co-owner decides to sell or transfer their share of the property. For example, if one joint tenant sells or gifts their interest to another party, it breaks the unity of time. The new co-owners’ acquisition of interest at a different time than the original co-owners fails to meet a fundamental requirement for joint tenancy.

If a joint tenancy does not meet the strict requirements of the four unities, it typically becomes a tenancy in common.

Tenancy in common real estate definition

In this arrangement, two or more people hold ownership of a property. Unlike joint tenancy, the shares can be unequal, and there is no right of survivorship. Each tenant in common can dispose of their share of the property as they wish in their will.

If one owner dies, their interest in the property becomes part of their estate.  They pass it on according to their will or, if there is no will, according to state law. Owners who are not family members or want more flexibility in managing their share often use this type.

Tenants in Common Examples:

1. Three friends invest in a property. One contributes 50%, and the others contribute 25% each, making them tenants in common. Each friend has the right to sell or mortgage their share independently, offering financial flexibility.
2. Siblings inherit their family home in unequal shares. One sibling wants to sell their share, while the others want to keep the property. In this situation, the siblings might face a partition action, where a court could order the sale of the property and divide the proceeds among them according to their respective ownership shares.

Tenants by the Entirety

Tenancy by the Entirety is a special co-ownership reserved exclusively for married couples and domestic partners in some regions. It is similar to joint tenancy in that it includes the right of survivorship. Still, it also offers additional protections based on the legal concept of the married couple as a single legal entity. Under this form of ownership, neither spouse can sell, mortgage, or otherwise encumber the property without the consent of the other.

Pros and cons of tenants by the entirety

Protection from Creditors: When one spouse has debts, creditors cannot take the property because both spouses own it together.

Automatic Right of Survivorship: Upon the death of one spouse, the other automatically inherits the entire property, ensuring a smooth transfer without the need for probate.

Mutual Consent for Decisions: Both spouses must agree to any decision regarding the property, which can ensure mutual agreement and prevent unilateral actions.

Tenants in common married couples: This form of ownership is not available to unmarried partners or other joint ownership arrangements.

Potential for Disputes: Requiring mutual consent for all decisions can lead to deadlock if the couple disagrees with the property’s disposition.

Complications in Divorce: Handling the property in a divorce becomes complex, as state laws dictate the process, particularly when both parties want to retain the property.

In Summary

As you step into the world of real estate, remember that the choice of ownership type can significantly impact rights, responsibilities, and the overall management of the property. Each form of tenancy serves different needs and situations, and as a real estate professional, your role in guiding clients through these options is invaluable.

Remember, real estate is not just about properties; it’s about people and their dreams. Your grasp of these concepts will empower you to be a key part of turning those dreams into reality.