May 3, 2023

Everyone wants to follow the great Australian dream at some time in our lives. Most people will buy a property, whether on their own, with their partner, their parent, sibling or even a friend.

If you are buying a property with another person, you will be asked if you want to own the property as ‘tenants-in-common’ or as ‘joint tenants’. It’s important for you to understand the difference as there can be significant financial and legal implications in these simple words.

The term ‘tenants-in-common’ means ownership of a property by two or more people in defined shares which may or may not be equal. For example, you might own the property in equal shares as tenants in common, which means that each person owns a separate 50% share of the property, or you might decide to own 75% of the property and the person you are buying with owns 25%.

Tenants-in-common is often the preferred choice by people who are buying a property with someone such as a friend or a parent or sibling, and each party wants to have the right to give their share of the property away under their Will. This is one of the advantages of holding a property as tenants-in-common. When one owner dies, their share of the property is passed on to their beneficiaries according to their Will, or according to the laws of intestacy if the person dies without a Will.

‘Joint tenants’, on the other hand, means that each person jointly owns the whole of the property. If there are two of you on the title as joint tenants, you do not each own a half share but rather you both own the whole of the property together.  If one party dies, their share automatically passes onto the surviving owner(s) and does not form part of the deceased person’s estate. Accordingly, no matter what your Will says, if you own a property as joint tenants with someone, the property will pass to that person and not to the beneficiaries under the Will (unless they make a successful challenge to the estate and the property is required to satisfy that challenge by way of ‘notional estate’ – a topic for another day!). It is common for parties in a relationship to hold their property as joint tenants to avoid the need for Probate to be granted by the Court when one of them dies.

If you hold a property as joint tenants but you no longer want the property to pass automatically to the other joint tenant (for example, where parties to a relationship have separated but not yet effected a property settlement) it is a simple matter to sever the joint tenancy by lodgement of a Transfer Severing Joint Tenancy with the Lands Department. For a small fee, the lodgement of this Transfer changes the ownership of the property from joint tenants to tenants in common in equal shares. The other person does not have to agree to this change and it does not affect any later determination of a court as to who owns what share of the property in a family law matter.

It is important to consider carefully how you want the property held at the beginning of the purchase, particularly in cases such as second marriages where parties wish to provide for children from a prior relationship from their Estate. It is far easier to make the right choice at the time of entry into the contract than to try to fix it later – particularly after someone has lost mental capacity or died and is no longer able to sever the joint tenancy.

There is no one-size-fits-all scenario, and if you are purchasing a property with another person, you should obtain specific advice as to your particular circumstances. Our lawyers are always happy to assist you.