When two or more people purchase real estate together, they become co-owners of the property. This co-ownership comes with specific rights and duties as specified by the type of co-ownership that arises after the sale of real property. Real property is defined, in legal terms, as land and anything growing on, affixed to, or built upon that land.
There are a few things that specify co-ownership:
- The buyer’s offer to purchase the real property;
- The actual agreement to buy and sell; and
- The deed to the property, or the written legal document that states who has legal possession of a parcel of land.
Depending on the specific case, one of three main types of co-ownership may come into play:
- Joint Tenancy: an estate or property is held jointly by two or more parties, with each share passing to the other(s) upon death;
- Tenancy in Common: tenancy in common occurs when more than one person possess one share of the property; or
- Tenancy by the Entirety: this is a form of ownership that can ONLY exist between husband and wife; each party has a right of survivorship, and neither party can terminate that right without the consent of the other.
Each of these types of co-ownership has specific rights and duties, and each must meet certain requirements. If the case is ambiguous, courts generally rule tenancy in common. Joint tenancy is an excellent way to avoid lengthy probate.
Joint tenancy is essentially determined by the co-owners of real estate expressing right of survivorship.
Right of survivorship refers to the right of joint tenants to claim the entire property as their own upon the death of another joint tenant. Establishing joint tenancy simply requires the right phrasing on the title document.
A deed that establishes joint tenancy might read, “To George and Jenny, as joint tenants, with the right of survivorship.” With this statement, George and Jenny are now joint tenants of the property bequeathed to them. If survivorship is not mentioned in the title document, many courts generally assume that a tenancy in common was intended.
However, a right to survivorship is not the only step in establishing joint tenancy. A set of legal requirements for a joint tenancy agreement is referred to as the “four unities:”
- Unity of Interest: all parties must have an equal interest in real property, such as equal ownership share and vesting for the same duration;
- Unity of Time: each tenant’s interest must present at the same time;
- Unity of Possession: each joint tenant must be allowed an equal right to occupy the entirety of the property; and
- Unity of Title: the interest of the joint tenant must arise from the same document, such as a deed or a will.
Joint tenancy is available in every state. However, some states do impose restrictions. With the exception of Colorado, Connecticut, North Carolina, Ohio, and Vermont, it is required that every joint tenant owns equal shares of the property. No one tenant may own more of the property than another. Alaska, Oregon, Tennessee, and Wisconsin have stipulations regarding joint tenancy between spouses.
Ending a joint tenancy typically occurs when any of the provisions that created the joint tenancy are broken. One of the four unities must be destroyed. When joint tenancy is terminated, it becomes tenancy in common. Some of the ways to end a joint tenancy include:
- The actual sale or transferring of the property by one of the joint tenants;
- The signing of a valid contract for the future sale of the property;
- The death of one of the co-owners; or
- A court orders a partition, or a forced sale of the property.
The main advantage to terminating a joint tenancy, and therefore forming a tenancy in common, is that your heirs will receive your share of the property in the event of your death. This ensures that your share goes to your beneficiaries as opposed to your co-tenants.
There are several benefits to a joint tenancy. The main advantage is avoiding probate. Probate can be a lengthy, complicated process when the decedent’s wishes are not made clear, so a joint tenancy can provide some clarity on the matter. Another great benefit is the right to collect rent and other profits. Generally, joint tenants are entitled to a portion of the rent and other profits that come out of the property.
Furthermore, the right to survivorship allows the other parties to receive the decedent’s share of the property at the time of death, with a process that is automatic and requires little to no paperwork in order to transfer the property. The process is much more simple in a joint tenancy.
For all of the benefits, there are some drawbacks. Issues may present themselves if one of the tenants files bankruptcy. There is more financial responsibility, and less personal freedom such as making changes to the property. Gift taxes and a lack of inheritance rights should also be considered when forming a joint tenancy.
Joint tenancies can simplify land matters, but it does require a good knowledge of property rights and laws. A knowledgeable and qualified property attorney will ensure that you understand the process as well as your rights and other options.