Joint tenancy vs. tenants in common: What's the difference?

There are several ways to own property with another person. Two ways to hold title together are joint tenancy and tenancy in common agreement. These forms of real property ownership agreements each have advantages and disadvantages depending on your individual needs and circumstances.

People might choose a joint tenancy or tenancy in common agreement when they are a married or cohabitating couple, family members, business partners, investment partners, or even roommates choosing to own property together. Whatever your reason, learning the advantages and disadvantages of a joint tenancy vs. tenancy in common agreement will help guide you through the property ownership process.

Note that while the term "tenancy" is used in rental situations, in this context it refers to ownership interest in a property. The owners in these arrangements would be referred to as joint tenants or tenants in common and are not renters.

What is joint tenancy?

When two or more people purchase a property together with equal interest in the property and equal rights, this is referred to as joint tenancy. Perhaps the most common form of joint tenancy ownership is that of a married couple.

In order to be considered joint tenancy, four conditions must be met:

• The tenants must obtain the property at the same time
• Equal property interest by each tenant
• All tenants must acquire the title deed from the same document
• Equal rights of ownership must be exercised by all tenants

According to Gagan Saini, the director of acquisitions of JiT Homebuyer, a real estate solutions and investment firm in Metairie, Louisiana, a joint tenancy agreement requires owners to agree on any decisions about the property. "This includes decisions such as when to sell the property, who is responsible for maintenance and repairs, and how the profits from the sale of the property are divided," Saini says.

Advantages of joint tenancy

When you hold title in a joint tenancy, if one of the co-owners dies, the ownership rights automatically transfer to the remaining owner or owners. For example, if Bob and Cindy are married, and Bob dies, Cindy will automatically become the full owner of the property. There will be no need to go to probate, and Cindy will not owe any transfer taxes. If the property were owned in joint tenancy by unmarried persons, the remaining owner or co-owners would also avoid the probate process, although they would need to claim the inherited property as a gift.

The automatic transfer of ownership to your co-owners, as outlined above, is referred to as the right of survivorship.

Additionally, joint tenancy guarantees equal rights and ownership for all parties. So if two people own the property, each controls 50%. If there were five owners, each would control 20% interest in the property.

Disadvantages of joint tenancy

Perhaps the most significant disadvantage of joint tenancy relates to creditors. If one of the tenants owes a debt, a creditor has the power to terminate a joint tenancy even if the other co-owners have nothing to do with that debt. If you are seeking joint tenancy with someone who has bad credit, significant debt, or is prone to liability by profession, you will need to be aware of these risks.

If you do not wish for your ownership to transfer automatically to the other owners and would instead it prefer to go to your heirs, joint tenancy is also not a good option for you.

Another disadvantage of joint tenancy is that if you and the other co-owners cannot reach an agreement on what to do with the property, you would need to file a lawsuit, referred to as a partition action. Your co-owners would be required to respond to the partition action, which can be costly and time-consuming.

What is tenancy in common?

If multiple people hold title under tenancy in common, this means that each individual can choose to sell their ownership interests in the property at any time. Unlike with joint tenancy, a tenancy in common agreement allows for multiple owners to own different percentages of the entire property. Although one tenant could potentially own just 30% of the property while the other owners own 35% each, this does not mean that certain areas of the property are owned by those holding the larger ownership percentage. The entire property is available to each owner, regardless of percentage, and that is called undivided interest.

Additionally, on the occasion of their death, each co-owner may choose who will be the beneficiary of their ownership as part of their estate.

A tenancy in common may also be referred to as a TIC agreement. The acronym stands for tenancy in common.

Advantages of tenancy in common

Under a tenancy in common title, each owner does not need to have equal shares. So theoretically, one owner could have 25% ownership while the other has 75%.

This type of joint ownership is ideal for groups of people looking to share property or married couples who, for whatever reason, do not wish their share of the property to transfer automatically to the surviving spouse upon their death. For example, if a person marries a widow with children, the couple may wish to jointly own property through tenancy in common so that the widow can leave her share of the property to her children instead of her spouse.

Disadvantages of tenancy in common

If you do not have a will and hold title via tenancy in common, your share of the property will be distributed according to your state's probate laws. Under tenancy in common, there is no right of survivorship.

If you share ownership through a tenancy in common title, your co-owners can sell their portion without your say, meaning that theoretically owners could find themselves co-owning property with complete strangers. For example, if three roommates hold title under tenancy in common and one of the roommates decides to sell their part of the ownership, the remaining two roommates have no say regarding this decision.

Joint tenancy vs. tenancy in common

The key differences between these two options for property ownership are:

Choosing which ownership works for you

When deciding whether joint tenancy or tenancy in common is more suited for your needs, the first step is to make sure you understand the differences between both of these co-ownership options. Choosing to own as tenants in common vs. joint tenancy requires knowledge of both choices.

According to Troy Robillard of Premiere Plus Realty in Fort Myers, Florida, no matter your circumstance, you will need to consider all the advantages and disadvantages of each structure as well as consult experts. He says, "Whether you're a married couple, business partners, or investors, selecting the appropriate ownership structure requires careful consideration of your goals and preferences. Consulting with a legal professional or real estate expert can provide invaluable guidance tailored to your unique circumstances, ensuring you make informed decisions that align with your long-term plans."