Q. I’m thinking about buying an investment property as a pension plan with a friend of mine, I have heard there are two ways of holding this legally, can you advise on the difference between tenants in Common and Joint tenants?
A. Buying a property with a friend is a fabulous idea and can spread the cost and the responsibility. As you rightly mention there are two ways to do this legally namely Tenants in Common or Joint Tenants. Tenants in Common is one way to hold title to own property by two or more individuals. Sometimes it is referred to as Tenancy in Common. There is no limit to the number of individuals who can hold title to one piece of real estate. A property held by tenants in common can be owned by two owners or 100+ owners. How Are Tenants in Common and Joint Tenants Similar? They aren’t, really. Tenants in common hold one unity or requirement that is similar to joint tenancy. That unity is the right of possession.
•Tenants in common can be between two or more persons who are related or who are unrelated. Husbands and wives can hold title as tenants in common. John Smith, Mary Johnson and Tom Baker can hold title together as tenants in common.
•Ownership can be held in equal shares or unequal shares. For example, John could hold 50% ownership, Mike 25% and Tom 25%.
•Co-tenants have the right to possess the property by one tenant or by all the tenants. Tom can live in the property by himself or share the property with John and Mary. Neither tenant can exclude the other.
•Upon death, the interest of the deceased co-tenant will pass to the co-tenant’s heirs. If Tom died, John would still hold 50%, Mary would own 25%, but Tom’s 25% would pass to whomever he designated in her will.
How Can Joint Tenants Become Tenants in Common?
Joint tenancy requires four unities. Unlike tenants in common, joint tenancy involves right of survivorship, meaning the interest held by each tenant will pass to the other upon death. The four unities necessary to create joint tenancy are:
• Each owner must receive title at the same time.
• Each owner must receive title on the same deed or document evidencing title.
• Each owner receives the same proportionate and equal share of ownership.
•Each owner has the identical right of possession.
If one of the joint tenants sells or conveys the interest created in a joint tenancy to another person, the joint tenancy is broken, and a tenancy in common is created. Joint tenants cannot stop another tenant from breaking the joint tenancy.
Dissolving Tenants in Common
•To dissolve the tenancy in common, one or more co-tenants can always buy out the others.
•The property can be sold and the proceeds distributed equitably among the owners.
•A partition action can filed. This involves going to court and asking to sell the property under court order and distribute the proceeds among the owners. When a co-tenant dies, you may see a partition action filed when an heir may want to sell and the other co-tenants do not.