Your guide to joint tenancy

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.

What is joint tenancy?

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.

How to create 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:

1. Time

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.

2. Title

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.

3. Interest

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.

4. Possession

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.

Severing joint tenancy

If one or more owners would like to sever joint tenancy, dissolution of the agreement may occur in several ways.

• Sale: If an owner decides to sell or transfer ownership to a third party, joint tenancy will be severed for that share, and the new buyer will enter "tenancy in common" with the remaining owners (more on that below).
• Partition: Should the owners at any point disagree regarding use or disposition of the property, the co-owners are entitled to file for a partition action in court. This may lead to the sale of the property, which would result in each owner receiving their share of the proceeds. As is the case with many legal proceedings, partition may potentially require significant investments of both time and money.
• Mutual agreement: Perhaps the friendliest way to sever joint tenancy, mutual agreement refers to any situation in which all owners unanimously agree to severance.
• Divorce: If a married couple decides to get a divorce, joint tenancy is typically severed. What happens to the property depends on the proceedings. The ex-spouses may enter a spousal agreement, convert their ownership to tenancy in common or file for a partition action.

Joint tenancy vs. tenancy in common

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.

• Ownership: As mentioned earlier, each owner has equal rights in a joint tenancy agreement, and if one of the owners passes away, their share goes to the remaining owners by rights of survivorship. With tenancy in common, each owner is permitted to own a different percentage of the property. If one of the owners passes away, their share will generally be inherited by their designated heirs or beneficiaries as dictated in their will.
• Creation: To create joint tenancy, owners are usually required to meet the criteria of the "four unities" of time, title, interest and possession. In contrast, tenancy in common is more flexible in that co-owners are permitted to acquire ownership at different times, have different titles and ownership interests and occupy different areas or own different shares of the property.
• Transferability: While rights of survivorship allow for easy transfer of ownership, joint tenancy generally requires the consent of all owners to transfer ownership in any other type of situation. This may get complicated, especially if there are many co-owners involved. A tenancy in common agreement, however, doesn't require the consent of the co-owners if one owner decides to transfer, sell or will their share of the property.
• Decision making: In a joint tenancy, if an owner wants to make a decision regarding the property — whether it's painting a room chartreuse or selling the home altogether, the decision needs to be unanimously approved by every owner before it takes place. Tenancy in common allows owners more independence, as individual owners can sell, mortgage or (if they have the rights to a specific area) make changes to their share of the property.

Pros and cons of joint tenancy

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.

Pros of joint tenancy

• Ease: Thanks to right of survivorship, owners have a clear path should one of the owners pass away. Joint tenancy allows owners to avoid probate, which is a potentially lengthy legal proceeding regarding the transfer of an estate through the examination of a will. Similarly, transferring ownership is easy compared to other co-ownership situations such as tenancy in common.
• Equality: Joint tenancy may be appealing to those with an egalitarian mindset, as it could promote a sense of shared responsibility and careful decision making. Maybe teamwork really does make the dream work, after all.

Cons of joint tenancy

• Disputes: As much as owners may want to have a similar approach to important decisions, there are scenarios in which co-owners may disagree. Since joint tenancy requires unanimous consent among owners, these potential disagreements could lead to issues with the management and maintenance of the property.
• Creditor's claims: If an owner finds themselves in debt, creditors may decide to place a lien on the property or even initiate a forced sale to satisfy the debt. This could negatively affect the remaining joint tenants.
• Inheritance complications: While avoiding the complications of probate court is helpful in certain scenarios, the owner's family or heirs may be left without any right to the property.

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.

In summary

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.

Joint tenancy FAQs

1. When might you need a joint tenancy?

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.

2. Can one person leave a joint tenancy?

Yes, one person can leave a joint tenancy. You may sever joint tenancy through sale, partition, mutual agreement or divorce.

3. Is joint tenancy the same as tenancy in common?

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.