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Estate Planning, Property Disputes and the Importance of Having the Right Type of Ownership

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If you are thinking of buying a property with a friend or partner there is a choice of the type of ownership. There are essentially two choices which are as Tenants in Common or as Joint Tenancy. There are important differences between them and it is important to understand the legal and financial effects, including estate planning, of these two ownership types. For example, a bank financing the transaction will need to know should there be a default by a party.

How a property is acquired is not limited to the purchase of residential property but applies to other types such as commercial property.

What is a joint tenancy?

Joint tenancy is a type of co- ownership where each person owns the whole of the property. If a party wishes to sell all parties must agree.

A joint tenant cannot leave their share of title to the property in a Will. This is known as ‘right of survivorship’. This somewhat non-intuitive sounding right provides that upon the death of one of the joint tenants, the entire co-owned property is said to ‘survive to’ the living joint tenant(s). The rights of a joint tenant are in effect extinguished upon death. In practice, this means that if one of the parties dies the property automatically passes to the other owner(s).

What is a tenancy in common?

Where parties own property as tenants in common it means that the two or more persons who own the property do so in defined shares. These shares may be equal or they can be in very different proportions. A smaller share does not mean limited access to the property and there is the right to access all of it.

A tenant in common can sell their share in the property or leave it in a Will. The ‘right of survivorship’ does not apply to tenants in common co-ownership.

 Which type of co-ownership is best?

When parties own a property as joint tenants it means that they have an equal interest in the property. Married couples that own property together would typically do so as joint tenants.

Tenants in common is the type of ownership more often used by friends or relatives who are buying together accommodating the concept of different sized shares.

What happens if a co-owner dies?

Under a joint tenancy the ‘right of survivorship’ means that if one co-owner dies, the property does not form part of the deceased’s estate. The property will automatically pass to the surviving joint tenant. This will be the case even where there is a different intention expressed in the deceased’s Will.

If a tenant in common dies there is no ‘right of survivorship’. This means that their interest in the property forms part of the deceased’s estate. It will be transferred to the relevant beneficiaries of the estate or otherwise dealt with by the estate’s legal representative.

The position of law and equity

Whilst Courts must apply the rules of common law and statute they have always had the discretion whether or not to apply an equitable rule or award an equitable remedy. In exercising this discretion the Courts apply the principles of equity or fairness. Equity can potentially protect those seen to be at a disadvantage and is particularly relevant to property matters.

Ryan v Dries (2003)

The case of Ryan v Dries (2003) considered the issue of compensation for improvements to a co-owned property and whether or not a party was entitled to be compensated for repairs, improvements and mortgage payments made towards a property that was jointly owned. What this case demonstrated was that although it is clear that legally there was a joint tenancy, the doctrine of equity may impose a ‘trust’. The effect of this could be that the parties could be said to hold their interests in effect as tenants in common rather than joint tenants.

Delehunty v Carmody (1986)

Another example of where equity imposed a trust was in the case of Delehunty v Carmody (1986). In this case, the property was legally owned in the sole name of the husband. The wife had, however, made contributions to the purchase price. It was decided that a trust had arisen and as such the wife was in effect an equitable joint tenant for the relative share of her contribution to the purchase price.  

It has been said that the common law favours joint tenancies for the benefits of certainty and survivorship. Equity, on the other hand, tends to prefer tenancies in common as providing fairness between co-owners.

Ending joint ownership

A joint tenancy can be severed by completing the necessary documentation signed by both owners. This is a common scenario in relationship breakdowns.

Each tenant in common has the right to deal with their share of the property separately from the other owners.

What does it mean?

In essence, joint tenants have equal ownership of the property and must agree if there is to be a sale. Secondly, there is a right of survivorship. In contrast, co-ownership as tenants in common means two or more persons owning a property in defined shares which may or may not be equal in size. A tenant in common can sell their share in the property or give it away in their Will with no right of survivorship applying.

These differences in co-ownership types are important. If you are considering buying a property with someone else it is essential to consider what effect the form of ownership may have on your estate planning and the impact when you want to sell the property in the future. It is also important to take into account the financial implications of each type of ownership.

Contact our Estate Planning and Property Dispute Lawyers in Sydney, NSW

At Szabo & Associates Solicitors we provide legal advice in all aspects of buying, selling and leasing property, including conveyancing but also estate planning and property disputes. Please contact us on 02 9281 5088 or fill in the online contact form.

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