The purchase of real estate is nearly always a significant event in a person’s life. During this time, the buyer will be asking some very serious practical questions such a; can I afford a mortgage? What will the repayments be? How is my life about to change?
As lawyers, we find that there is one very important question which often gets overlooked by prospective buyers: How do I own the real property if there are two or more purchasers?
Most people do not even realise that there are different types of land ownership.
What are the different types of land ownership?
If real property is owned by one person, this is called sole ownership, but if two or more persons own the property they would hold the property either as Joint Tenants or Tenants in Common. The above terms are used to refer to two different types of joint ownership of property.
It is important for prospective buyers to understand the differences between the two types of joint ownership as there are important legal differences between them with the buyer selecting the right type of ownership depending on their situation.
Joint Tenants
Joint Tenants assumes that each tenant has an equal interest in the real property and is entitled to a “right of survivorship”. In simple terms, should one owner of the joint tenancy dies, then the survivor is automatically entitled to the deceased‘s portion of the property. An application to the Lands Titles Office of Australia is made to facilitate the registration of this change in ownership.
Joint tenants is most commonly used in situations whereby the two persons are married or in a de-facto relationship. It may not, however be the best choice. For example, if one person had children from a previous relationship and predeceased their new spouse then their share of the property would go directly to the new spouse. Furthermore, as the legal relationship of a step-parent under South Australian law ceases if the natural parent predeceases the step-parent, then the children of the deceased, unless willed, would have no entitlement to the property and would not be able to make a claim against the estate. Put bluntly, it is possible that the children from the previous relationship are effectively disinherited.
Tenants in Common
Tenants in Common differs in that buyers do not have to hold the real property in equal shares but rather shares can be apportioned to reflect each buyers’ contribution. Tenants in Common does not allow for the ‘right of survivorship’. This means that when one owner dies, that person’s share does not automatically vest in the other tenants owning the property. Rather, the deceased’s share is dealt with under his or her estate and the Executor or Administrator must administer the will or letters of administration in order to be able to pass on that interest on to the relevant beneficiary.
Tenants in Common is frequently used where the prospective buyers of the real property are in business or are friends or relations who have pooled their funds to purchase the property. Furthermore, it may also be relevant to consider changing your ownership from Joint Tenants to Tenants in Common in the case of a relationship breakdown to negate the pitfalls describe above with Joint Tenants.
It is prudent to seek advice from a solicitor when purchasing a property in order to ascertain the best way to own the property. A solicitor is best equipped to determine the best types of land ownership for you with an awareness of the implications of this from an estate planning, asset protection, and tax perspective. For advice on joint tenancy or property law in general, please contact Maddalena Romano or the team at Welden & Coluccio Lawyers.