Puzzle Finance Blog

Unlock ownership matters

Before signing a joint property contract, work out which type of tenancy suits best.

The contract arrives. The property purchase is, not unusually, being made by two people with the same surname. But there's no instruction about how they'll share ownership - whether as ''joint tenants'' or as ''tenants in common''.

There are crucial legal differences between the two structures, which have long-term financial ramifications.

''Many a lawyer would have presumed they were husband and wife and have written up the documents as joint tenants,'' the solicitor involved at the time says.

As it turns out, they were brother and sister.

What would have happened if he hadn't made inquiries and discovered they were siblings?

Imagine that, 10 years later, the young woman marries, has a family but then dies suddenly.

As joint tenant, the brother would become full owner of the property, regardless of the existence of his sister's young family and what she might have wanted for them.

Had they been tenants in common, the sister could have made provision in her will for her young family to benefit from her half of the house.

''The really important thing when you buy property is thinking about what's the legal consequence that you'd want [from the ownership structure],'' a senior lecturer in the University of NSW's faculty of law, Cathy Sherry, says.


Joint tenancy is the most common form of ownership because most people own property with their spouse, she says.

A key difference from tenancy in common is that joint tenancy comes with the ''right of survivorship''.

That means when one of the joint tenants dies, the other ''absorbs'' their share, Sherry says.

''If your husband dies, you don't inherit his share; his share just disappears and yours gets correspondingly bigger. That's important, because it doesn't become part of the estate for the administration of the will.''

One result is that, as a general rule, the deceased's share of the property won't be sold to pay off debts.


With tenants in common, there's no right of survivorship and his share would go to whomever he names in his will. If that's the children, you would end up owning your home in partnership with the children.

If he divides his assets between you and your child, you would keep your existing half as a tenant in common and pick up another quarter, with the child owning the other quarter of the house.

''If you're talking a garden-variety first marriage, joint tenancy would be what you want,'' Sherry says. ''If you're talking about a second marriage, or you're not in a relationship at all but are just friends, that's different.''

Take a scenario in which there's a new partner, along with children from a first marriage.

''If you buy property as joint tenants with your new partner, you're just assuming they're going to look after your kids [financially] - and that may or may not be the case,'' Sherry says.

If you buy as tenants in common and you name your children as beneficiaries of your estate, your new partner will co-own the house with your children.

That has risks, too, however. If the children are adults and want the money that's tied up in the house, as co-owners they could force a sale.


Another difference between joint tenancy and tenants in common is that joint tenants always have equal shares, while one tenant in common can have a bigger share than the other (or others).

The bottom line is that if there are any complications, you need to obtain advice about the best structure for your situation, Sherry says.

''When buying a property, you should always be advised by a solicitor or licensed conveyancer. If there's anything complicated, make sure a lawyer is involved.''

If you are reading this and thinking you might be in the wrong ownership structure, Sherry says you can change from joint tenancy to tenancy in common.

''If you don't want the right of survivorship, you can sever a joint tenancy,'' she says. ''It's relatively straightforward to do. The other joint tenant generally has no ability to prevent you doing so.''

But you must do it in your lifetime, because such a change can't be made by your will after you die.

Community title - what you are up for

The adage of ''buyer beware'' is especially important with community title, law lecturer Cathy Sherry says.

This form of title - essentially the same legal structure as strata title - is associated with some, though not all, ''master-planned'' housing developments.

''If you're buying community title you must understand what you're buying,'' Sherry says.

With strata title you part-own property, such as the lifts and common areas, but with community title that part-ownership can extend to parks, tennis courts, a country club or marina, not to mention possibly the sewerage system and the roads.

There will also be by-laws that prohibit some things and prescribe others. You might have to mow your lawns every fortnight and have only white window coverings, for instance.

In the by-laws of one community viewed by Sherry, children were restricted from being in the park unless accompanied by a resident aged 21 or above, so the older kids couldn't take the younger ones out to play.

''If you walk around one of these places and say, 'Isn't it beautiful?' you need to ask yourself why is it beautiful and who pays to keep it looking like that,'' Sherry says. ''You own it, and you have to pay for it.''

Developers and real estate agents argue such by-laws maintain standards and increase property values in these developments. Sherry says that's true sometimes, but not always.

In the US, where such communities have a longer history, properties are now being advertised as having ''No home owners' association'', she says.

''Not having rules and extensive facilities, particularly post-GFC, is distinctly attractive to many buyers.''

Posted by Lesley Parker - The Age on 19th September, 2012 | Comments | Trackbacks

Bookmark and Share

The trackback URL for this page is http://www.puzzlefinance.com.au/trackback?post=26323610


There are no trackbacks for this post


There are no comments for this post

Post a Comment

HTML is not allowed in comments, http://... will be automatically linked.

Name (required):

Email Address (not displayed):

Comment (required):

To help prevent spam, please enter the word aloe here:

Puzzle Finance Blog

About Puzzle Finance


September 2017
August 2017
July 2017
June 2017
May 2017
March 2017
February 2017
January 2017
December 2016
November 2016
October 2016
July 2016
June 2016
May 2016
April 2016
March 2016
February 2016
January 2016
December 2015
November 2015
October 2015
September 2015
August 2015
July 2015
June 2015
May 2015
April 2015
March 2015
February 2015
January 2015
December 2014
November 2014
October 2014
September 2014
August 2014
July 2014
June 2014
May 2014
April 2014
March 2014
February 2014
January 2014
December 2013
November 2013
October 2013
September 2013
August 2013
July 2013
June 2013
May 2013
April 2013
March 2013
February 2013
January 2013
December 2012
November 2012
October 2012
September 2012
August 2012
July 2012
June 2012
May 2012
April 2012
March 2012
February 2012
January 2012
December 2011
November 2011
October 2011
September 2011
August 2011
July 2011
June 2011
May 2011
April 2011
March 2011
February 2011
January 2011
December 2010
November 2010
October 2010
September 2010


Purchase or Rent (1)
The Age (1)