Last updated September 16, 2022
Buying property as a joint tenant or a tenant in common affects your rights and obligations as a property owner.
So, which option best suits you?
We’ll explain what it means to be a joint tenant or tenant in common, plus the pros and cons of each.
What are joint tenants?
Joint tenants are two or more people who own equal shares in a property.
But, a word of caution: equal ownership also means equal responsibility.
So, if one tenant accrues debt on the property, all tenants are liable for payments. This can be one downside to the joint tenancy if your partner is poor at money management.
That being said, all parties are also entitled to any profits the property generates. So, if renting or selling brings income, each tenant gets a fair share.
Typically, joint tenants also have the right of survivorship. If a tenant dies, a joint tenant with this right inherits the deceased’s share of the property immediately.
Joint tenancy is most common among married couples because it helps property owners avoid probate. Without joint tenancy, a spouse would have to wait for their partner’s Last Will to go through a legal review process—which can take months or even years.
Can a joint tenant transfer their interest in a property?
Yes, joint tenants can use legal documents such as a Quitclaim Deed or a Warranty Deed to:
- Transfer property interest to a family member, organization, or trust fund
- Add or remove names from the title after a marriage or divorce
- Remove a lien from a property title
What are tenants in common?
Unlike joint tenants, tenants in common can own unequal shares in a property.
Plus, tenants in common do not often have rights of survivorship. If one owner dies, their interest in the property does not automatically transfer to the other owner(s).
Imagine that Sam, Bill, and Mary all own a house together. Sam owns 50%, Bill 30%, and Mary 20%. So, what happens if one of the tenants in common dies?
Well, their interest in the property goes to the beneficiary named in their Last Will and Testament.
That means if Sam dies and doesn’t name Bill or Mary in his Will, their shares in the property don’t change. If Sam doesn’t leave a Last Will, his estate gets distributed according to state intestacy laws.
Tenancy in common is beneficial for people who want to control the percentage of interest each party has in a property.
Consider it this way: Sam, Bill, and Mary use the home as an investment property. Each of them contributes differently to mortgage payments, building renovations, and property management. As such, they prefer ownership rights to be equal to their capital investments.
This type of tenancy is also useful for people who don’t want to leave their interest in a property to another owner. For example, Mary might want her 20% share to go to her daughter instead of to Bill or Sam.
If you‘re a tenant in common, it’s crucial to create a Last Will and Testament to pass your property interest to the beneficiary of your choice.
The pros and cons of each ownership type
|Joint Tenants||Tenants in Common|
|✔ Tenants have an equal percentage of interest in the property||✔ Tenants can control the percentage of interest each party has in the property (can be unequal)|
|✔ Each tenant is entitled to an equal share of any profits from the property||✔or ✘ Tenants’ share of profits from the property are equal to their ownership share|
|✔ Tenants automatically inherit each other’s property share if the other dies||✔ or ✘ Tenants do not automatically inherit each other’s property share if the other dies|
|✘ All tenants are responsible for any debts or liabilities related to the property||✔ or ✘ Liabilities may depend on state laws or other contract agreements|
Being a joint tenant or tenant in common is more or less beneficial depending on who you’re partnering with and what your relationship with them is like.
If you’re in a committed relationship with the other tenant, a joint tenancy is probably a good choice. But, if you’re in a business venture with the other tenant, perhaps being a tenant in common works better for you.
If you’re not sure how to assign ownership rights in your next real estate purchase, talk to your real estate agent or lawyer.