Land titles have different purposes under common law and your future decisions can be directly affected by your choice. There are other impacts of the title that you should know about when buying like how your credit rating could be affected, that you may have less borrowing capacity, or that you can not will your property to whom you choose.
When you buy a property, you need to consider what would happen to the property should the people on the title separate or die. You may also be buying with more than one person and the ownership of the property may be unequal. This may mean that people are contributing different amounts, or the parties may wish to bequeath their portion to people other than the people on the title. It is very important to consider how you want your portion distributed and the different titles help to ensure your choices.
Sole ownership is where a person owns the property by themselves. This means no other party has an interest in the property, it becomes a part of their estate upon their death. The property is distributed according to their will, or the rules of intestacy if there is no will.
The concept of joint tenancy stems from a time when married women couldn’t legally hold property. Married women themselves were regarded as a ‘chattel of their husband’ and everything a wife owned became her husband’s property. Descended from common-law tradition, joint tenancy has evolved to more closely reflect society. Its original purpose was to ensure women and children had a place to live should the husband/man die.
Joint tenancy is a special form of ownership by two or more persons of the same property. The individuals, who are called joint tenants, share equal ownership of the property and have the equal, undivided right to keep or dispose of the property.
Should a joint tenant die the other joint tenant inherits the entire property. Joint tenants have four main features:
- The joint tenants own an undivided interest in the property as a whole, each share is equal, and no one joint tenant can ever have a larger share;
- The estates of the joint tenants are vested (meaning fixed and unalterable by any condition) for exactly the same period of time — in this case, the tenants’ lifetime.
- the joint tenants hold their property under the same title and
- the joint tenants enjoy the same rights until one of them dies. Under the right of survivorship, the death of one joint tenant automatically transfers the remainder of the property in equal parts to the survivors. When only one joint tenant is left alive, he or she receives the entire estate.
If the joint tenants mutually agree to sell the property, they must equally divide the proceeds of the sale. Many property owners – particularly couples – choose joint tenants. However, if the parties wish to distribute their ‘share’ after death to persons other than their joint tenant partner tenants in common may be more suitable.
Tenants in common
Tenancy in common is a form of concurrent ownership – the joint ownership of property by two or more people. This type of title can be created by deed, will, or process of law. Several features distinguish tenants in common from joint tenancy – these include:
- a tenant in common may have a larger share of property than the other tenants;
- the tenant is free to dispose of his or her share without the restrictive conditions placed on a joint tenancy;
- tenants in common have no right of survivorship;
- no other tenant in common is entitled to receive a share of the property upon a tenant in common’s death unless so outlined and
- the tenants in common title holders nominate who the heirs of their estate will be.
Tenants in common is becoming more attractive as property prices increase and people unite to secure a home. Family members or friends can buy property together as an entry into the property market. However, it is wise to have an existing strategy or a time frame as these partnerships are typically shorter.
De facto couples, those entering into second marriages and blended families utilise tenants in common. This form of title ensures that the individual interests of survivorship are communicated.
Risks of co-ownership
When buying property with others there are risks when a person wishes to sell their shares. These can include:
- default on repayments or refuse to share costs – if they share a mortgage both credit ratings are impacted. A shareholder that defaults directly impacts the ‘compliant’ shareholder and
- if you have a mortgage with others that impacts all other borrowings. Generally, all other future individual borrowing capacity may be reduced.
Selling or changes to titles
When people want to sell or change their title arrangements the type of title affects the process. In joint tenants’ titles, the owners are considered as one unit. Therefore, all parties must either sell and dissolve the joint tenants’ title or seek legal advice to change the title to tenants in common.
Changing a title can occur for many reasons. Some original joint tenants may separate but do not want to sell their property. They choose then to become tenants in common so that they can will their portion to whom they choose. Or two siblings may have been given a property by parents on a joint tenant’s title but when the siblings meet partners, they individually choose to change how their portion would be distributed at death.
Stamp duty and title transfers
Spouses and de facto couples who co-own property have stamp duty implications should they sever the relationship. To be exempt from stamp duty, the property being transferred between spouses or domestic partners must be a residential property. Stamp duty will be charged if they alter the way couples own the property on the title of an investment property.
Land titles have meanings and careful consideration when you buy means less stress if you dissolve the partnership. The opportunity to purchase property, your credit ratings, borrowing capacity and who you will your assets to are all on title.