If you're exploring co-buying or co-owning a home, you may have stumbled across the term "joint tenancy." Joint tenancy is when two or more people enter a legal arrangement to buy a home or other type of property together. Like many real estate purchases, joint tenancy comes with its own set of considerations. Let's examine how joint tenancy works, how it differs from other co-ownership situations and some potential pros and cons buyers may want to be aware of.
Joint tenancy is one of a few types of real estate co-ownership. In this specific scenario, each owner has equal rights to the property, which also means they share both the benefits and the financial responsibility of ownership equally. Joint ownership of property could be shared by married or unmarried couples, friends, business associates or family members.
When two or more parties decide to enter a joint tenancy agreement, the deed will list the parties as joint tenants. In the event of a sale, each owner will be entitled to the same share of the profit. They'll also receive equal profits if the property is rented out. Along with splitting profits, joint tenants will be responsible for equal shares of the less glamorous aspects of ownership, including tax payments, maintenance and repair fees, insurance costs, property management fees and joint mortgage payments. Be aware that if any owners default on the above payments, the others are responsible for making the payments by their due date.
Creating joint tenancy usually creates another type of agreement: Right of survivorship. This means that if a co-owner dies, their shares of the property will be distributed evenly among the remaining owners. For example, if the owners in question are a married couple, the surviving spouse would own 100% of the property upon their partner's passing. Right of survivorship essentially simplifies the transfer process, which may save time and spare grieving parties the effort of navigating a lengthy legal process. This simplification is one reason you may want to enter into a joint tenancy agreement.
Creating joint tenancy involves several steps, including doing one's due diligence and ensuring a knowledge of local laws and regulations. However, in a joint tenancy situation there are four specific requirements, known as the "four unities," that must be present:
In the case of joint tenancy, the requirement of "time" refers to when the owners acquire ownership rights. To create joint tenancy, all parties must acquire these rights simultaneously or on the same date. Let's say you're entering a joint tenancy agreement on a vacation home with friends. If all your names are on a deed with the same date, you'll have passed this requirement.
The title requirement has to do with the documents that prove ownership. When two or more people are buying a property together, they must be listed as co-owners on all relevant ownership documents, such as a deed or an occupancy certificate. If there are discrepancies — say one owner isn't listed on an occupancy certificate but is listed on the deed — it may be difficult to pinpoint which one is valid.
This requirement refers to each party's share of the property. In the case of joint ownership of a property, each owner is required to have an equal share of the property in question. If we're talking about a married couple, the share would be 50% to each spouse. In a joint tenancy agreement between four siblings, on the other hand, each party would own 25% of the property.
In a joint tenancy agreement, all owners must have an equal right to possess and use the whole property. This requirement is what "possession" refers to. For example, if a brother and sister are in a joint tenancy agreement as owners of a beach house, little bro can't claim the top floor of the house for himself. His sister is entitled to enjoy the space, top to bottom, as she pleases.
If one or more owners would like to sever joint tenancy, dissolution of the agreement may occur in several ways.
Joint tenancy and tenancy in common are the most well-known types of co-ownership. While they do have similarities, joint tenancy generally comes with more considerations than tenancy in common. There are several key differences between the two agreements, spanning many aspects of ownership. Let's break these differences down, one by one.
As is the case with most legal agreements, joint tenancy comes with its share of potential pros and cons which may make more sense for certain parties than others.
As every situation is different, it's good to weigh these pros and cons against your specific set of circumstances. If you're still unsure if joint tenancy is for you, consider reaching out to a real estate professional. They may be able to steer you in the right direction.
If you're exploring co-buying, joint tenancy is a solid option for anyone looking to share equal ownership of a property. While joint tenancy may generally help owners avoid some potentially lengthy legal proceedings, such as probate court, some familial issues such as divorce or death have the potential to get complicated. Understanding the nuances of joint tenancy may help buyers make a more informed real estate decision.
Because joint tenancy allows for easy transfer of ownership if a spouse dies, it may be especially beneficial for married couples seeking to spare their loved one the complications of probate. Similarly, close family members might use joint tenancy to seamlessly pass the property and ownership to survivors. In business scenarios, joint tenancy is a way to make sure that if one partner dies, their ownership and property can be seamlessly taken over by the remaining partners.
Yes, one person can leave a joint tenancy. You may sever joint tenancy through sale, partition, mutual agreement or divorce.
Joint tenancy and tenancy in common are two separate types of co-ownership agreements. While joint tenancy may be legally smoother in some scenarios, tenancy in common may offer more flexibility.
