Joint tenancy – a term that you need to know if you want to invest in a property with your friend(s), spouse, or business partners. It is a property law that recognises and protects such co-ownerships. As an ownership right it clearly demarcates the rights and responsibilities of each co-owner of the property purchased.
As an investment that is reputed to give great returns, real estate holds a special position in the portfolio of seasoned investors. The ownership of a property can be individual, double, or multiple. In this article, we are going in depth about joint tenancy in real estate – an important term in property ownership. Read on to find out all about it and be equipped for your real estate investment journey.
Table of Contents
What is Tenancy?
Tenancy is a legal agreement between two or more individuals regarding the ownership of a property. Two of the most common types of tenancy are tenancy in common and joint tenancy. Let’s get into the details.
As we have already seen, a tenancy is a legal document that asserts the rights of individuals on a property co-owned by them. While both tenancy in common and joint tenancy allow these rights, there are certain fundamental differences between the two.
Tenancy in Common
To put it simply, in tenancy in common, in the wake of the demise of a co-owner of the property, the ownership rights are passed on to their heirs. In other words, the right of survivorship (about which you will learn more in the ensuing section) is not applicable to tenancy in common.
Joint Tenancy
Quite contrary to tenancy in common, in joint tenancy, if an owner passes away, their rights to the property automatically go to the co-owner, or in case of more than one owner, get divided between them. The provision that makes it possible is called the right of survivorship.
It allows each owner to have equal rights to the property. People come together at the same time to acquire the property and will have a common deed between them that proclaims their right to it. As a result, they get equal rights to the property and the profit obtained from the property is equally divided between them.
However, an important aspect of joint tenancy is the fact that none of the owners has a specific share in the property. If there are just two owners and when one passes away, survivorship is applied, and the ownership of the property is handed over to the surviving owner. Remember, in tenancy in common, the share of the deceased owner goes to their heirs. The other ways in which a joint tenancy ends are when the property is sold or when a tenancy in common is applied.
Ownership Rights
As the name suggests, ownership rights indicate the right of ownership to a property. There are different types of ownership rights. The following are the most common types of ownership rights, which are applicable to both residential and commercial real estate.
Sole Ownership
The term is self-explanatory and suggests that the ownership rights of a property solely lie in a single individual.
Joint Tenancy
As we have already seen, this is a form of ownership in which two or more individuals have shared rights to the property.
Tenancy by Entirety
A type of property ownership which is available to married couple, tenancy by entirety treats a married couple as a single legal entity and will let both spouses own 100% of the property.
Tenancy in Common
Yet another type of property ownership that has already been mentioned above in detail, tenancy in common, allows two or more people to own a property. The ownership of an individual owner is transferred to their heirs in the wake of their death.
Real Estate Trust
When a trustee manages the real estate assets for a trustor or trustors, the arrangement is called a real estate trust. There are two types of trusts, irrevocable and revocable – while the former doesn’t allow the trustee to make any changes without the trustor’s permission, in the latter the trustee can make changes on their own.
Joint Tenancy with Rights of Survivorship (JTWROS)
When two or more people own a property together, one prominent type of ownership they can opt for is joint tenancy. When it is joint tenancy with rights of survivorship, in case of the demise of a co-owner, the rights to the property go to the other owner or owners instead of the heirs of the deceased. Also, if there is more than one owner, they are all given equal stake, access, and responsibility in the property.
Joint Tenancy – Pros and Cons
The Pros:
- Affordability: Makes homeownership quite affordable.
- Protection: Since joint tenancy gives each owner equal share and responsibility, each one feels responsible for the upkeep, improvement, payment of debts and thus protecting the property.
- Ease of Access: When an owner passes away, the right of ownership is automatically granted to the surviving co-owners, avoiding lengthy, complicated legal procedures.
The Cons:
- Relationship Matters: If a married couple’s relationship gets strained, it would be difficult for one party to sell off their share, as it requires the consent of both parties.
- Share Goes to Partner: In the event of the demise of a partner, their shares don’t go to their heirs, instead it goes to the surviving partner(s).
- Liability: If one partner faces financial uncertainties, the responsibility for the maintenance of the property falls on the other partner(s).
Joint Tenancy Vs. Tenancy in Common
- As we have learned in detail about both joint tenancy and tenancy in common and analysed their pros and cons, let’s now look into the difference between these two. The key differences between the two are as follows:
- Tenancy in common allows partners to have unequal shares and therefore different ownership interests.
- In joint tenancy, each tenant will hold equal share, carry out equal responsibilities and enjoy equal profit.
- In tenancy in common, after the demise of one partner, their share goes to their heirs.
- In joint tenancy, the deceased partner’s share goes to the surviving partner or partners.
- In tenancy in common, if one partner wishes to trade their shares, it can be easily done.
- Joint tenancy doesn’t allow the trading of shares without the consent of other partner(s).
How to Create a Joint Tenancy?
The first step towards creating a joint tenancy is to collectively declare it on the deed/title document. Needless to say, it should be done by all the prospective tenants. Each tenant would then indicate that they hold the property “as joint tenants with right of survivorship.” What is more, to successfully execute a joint tenancy, each tenant should have equal share and rights in the property. They should also acquire ownership of the property at the same time.
What if a joint Tenant Wants to Sell their Share?
In this form of ownership, each tenant will have equal share. If one tenant wants to sell their share, it’s mandatory for them to obtain the consent of the other tenant(s).
What are the Mortgage Requirements for Joint Tenants?
First and foremost, obtaining the consent of each tenant is mandatory to mortgage a property under joint tenancy. Besides, the credit score of the borrowers as well as their debt-to-income ratio should not be below 620 and 50% respectively.
Joint Tenancy – A Recapitulation
Joint tenancy in real estate is a legal agreement between two or more individuals regarding the ownership of property. It is one of the most common and affordable agreements in which when an owner passes away, their rights to the property are automatically granted to the surviving owners. It is ideal for married couples, friends, as well as business associates to own a property together through joint tenancy.
Also Read:
Real Estate Terms for Homebuyers – Everything You Should Know!
CIBIL Score for Home Loan – How it Affects Your Application?
TDS on Property Purchases: Key Considerations for Buyers
Mortgage Loan Vs Home Loan – What is the Difference?
FAQ’s
1. What is a joint tenancy in property law?
Joint tenancy is a legal agreement in real estate. It allows two or more people to jointly own a property. When one tenant passes away, their rights to the property are passed on to the surviving tenants.
2. Which tenancy is best for married couples?
Joint tenancy considers couples as a single entity. In terms of share, both husband and wife get equal share in the property.
3. What are the disadvantages of joint tenancy of property?
In joint tenancy, relationship matters a lot. If a couple goes for a divorce and one of the spouses wants to sell the property, obtaining consent from the other would be quite difficult. Yet another concern is the additional responsibility of bearing expenses for maintaining the property, if one of the tenants faces a financial crunch.
4. What is joint tenancy in India?
Joint tenancy is a legal agreement in India to own a property with friends, spouse, or business partners. This allows individuals to come together and own equal shares in a property.
5. What is the most common type of tenancy?
There are different types of tenancy when it comes to jointly owning a property. One of the most common types of tenancy is joint tenancy, which has a slew of advantages.
6. What does joint tenancy with right of survivorship mean?
Joint tenancy is one of the most common types of tenancy. Joint tenancy with right of survivorship ensures that the rights of a tenant, in the wake of their demise, goes to the surviving tenants.
7. How do you create a joint tenancy?
To create a joint tenancy, all the prospective tenants should come together at the same time and identify themselves “as joint tenants with right of survivorship.” To successfully establish a joint tenancy, each tenant should have equal share and rights in the property.
8. When do I need joint tenancy?
A joint tenancy is useful when people buy a property together. When you are married and want to own a property jointly, or buying it with friends or business associates, joint tenancy is quite helpful.
9. What forms of property can be held in joint tenancy?
Joint tenancy is a legal arrangement by which two or more people can own property. Both residential and commercial properties can be owned through joint tenancy.
10. What happens when joint tenants separate?
Joint tenants can opt to separate if they want. In such a scenario, each tenant can sell their share to a third party and thus disown the property.
11. What happens if one person wants to leave a joint tenancy?
A joint tenancy allows equal share to each individual in the property. When a tenant wants to leave, he should get the consent of other tenants.
