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Joint tenancy, as described by the ATO is where “joint tenants have an equal share in the ownership of an asset. If a joint tenant dies, the other tenant (or tenants) has a right of survivorship. The deceased tenant's interest is not an asset of their estate.”
On the other hand, tenancy in common is defined as “two or more people who separately own a percentage of a property. The percentages may be unequal. Tenants in common can bequeath their share of the property to anyone.”
A major difference between the two is when someone dies in a joint tenancy, “the deceased’s interest is taken to pass in equal shares to the surviving joint tenants, as if the interest is an asset of the deceased estate and the surviving joint tenants are beneficiaries.”
Conversely, with tenancy in common, the shares of the property become part of the deceased estate, as there is no right of survivorship. The portion of property can therefore be transferred to a beneficiary of the estate or sold by the legal personal representative of the estate.
However, another major difference is that tenants in common can sell their share of the property without the agreement of the other tenants. Joint tenants require the compliance of the other joint tenants.
While this can be beneficial for those looking to enter the housing market on a budget, there are risks involved, such as each co-owner being liable for the debts of the other owners.
Where tenancy in common can become a benefit is for people looking to downsize without having to move.
“There are thousands of affordable homes hiding in plain sight. Mum and dad, empty nesters that have got the four- or five-bedroom house that want to downsize, they don’t have to move from their neighborhood and their family home necessarily. They can do a renovation and create a separate living space and move back into a smaller, two bedrooms and living area,” said ticX managing director Tony Puls.
“They can sell 40 per cent or 50 per cent of the property to someone as a tenant in common. They both then become tenants in common. The person who’s bought the 40 per cent or 50 per cent has rights of occupancy or can rent it out to somebody else for that particular part of the property.”
Puls believes tenancy in common is “Australia’s best kept secret”, as not enough people aren’t taking advantage of it.
“Fewer and fewer people are able to take out a large mortgage to buy a property on their own. Shared ownership comes into play eventually as things get just out of reach and too expensive … It’s Australia’s best kept secret,” said Puls.
“People don’t know what tenancy in common is. They think it’s something to do with renting, not ownership. So, there’s a lot of education to do.”
According to Puls, mortgage brokers are missing a real opportunity to expand offerings. He believes many are unaware of this method.
“We’re trying to encourage brokers and make lenders realise that there’s this huge untapped market. And if they just understand the law and know as a fact, as an absolute fact, that a tenant in common share can be mortgaged,” Puls said.
“What we want to try and encourage lenders to do is to create and develop lending products that address the need of individual tenants in common to mortgage their share only, not the whole property.”
This type of ownership covers both commercial and residential mortgages.
“It can be anything. It can be rural or commercial. When you look at the types of properties, you’ve even got resort style property like condominiums, or high-rise apartments on the Gold Coast, holiday properties,” said Puls.
“Somebody in Melbourne, where it’s cold, could own 25 per cent of an apartment on the Gold Coast. And that’s probably enough for the family use. And it’s an asset they own that they will appreciate over time.”
[Related: Advice for young first home buyers]
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