What Is Joint Tenancy in Property Ownership?

What Is Joint Tenancy?

The term "joint tenancy" refers to a legal arrangement in which two or more people own a property together, each with equal rights and obligations. Joint tenancies can be created by married and non-married couples, friends, relatives, and business associates.

This legal relationship creates what is known as a right of survivorship so if one owner dies, their interest in the property is directly passed on to the surviving party(s) without having to go through probate or court system.

How Joint Tenancy Works

Joint tenancy is a form of property ownership normally associated with real estate. Two or more parties come together at the same time to make a legally-binding agreement with one another through a deed. These parties may be relatives, friends, or even business associates. For example, let's say an unmarried couple purchases a house. At the time of purchase, they opt for joint tenancy. The deed to the property will name the two owners as joint tenants.

Since each party has a claim to the property, they also share the benefits. If they decide to rent out the home to another individual or if they sell the property, each party is entitled to a 50% share in the profits. But the relationship also means they are equally responsible to pay for the property including mortgage payments, property taxes, and maintenance. If one fails to live up to the financial obligations, the other party must assume responsibility.

Rights of Survivorship

This agreement also creates what's referred to as a right of survivorship. This means that if one person dies, the other party automatically assumes full ownership of the property. This eliminates the need for probate or the transfer of a deceased person's assets to an estate. Probate courts decide the validity of a person's will and divide the assets up appropriately among the deceased's beneficiaries.

Although joint tenancy is most closely associated with real estate ownership, the broader legal concept of joint tenancy with right of survivorship can apply to a range of assets, including businesses and brokerage accounts. A strong association with real estate exists because the term tenancy is seen as synonymous with owning or living in a home.

Creating Joint Tenancy

In most cases, there are four items that must be present when creating a joint tenancy. Note that not all jurisdictions may require these, and in some cases, other requirements exist to create a joint tenancy. The four concepts revolve around time, title, interest, and possession.

Time

The requirement of time usually indicates that all joint tenants must acquire their ownership interests in the property simultaneously. It does not necessarily mean that all joint tenants have to sign the same document at exactly the same moment, but they should obtain their interests in the property from the same even. For example, if two people purchase a property together and both names appear on the same deed with the same date, the unity of time is satisfied.

Note that as ownership progresses, changes to the ownership structure are common and natural. For example, should those two people no longer fraternize, one may sever their ownership or be replaced by a new joint owner. Very broadly speaking, joint tenancy most often occurs naturally at the start of an ownership agreement, though it may change over time.

Title

Title requires that all joint tenants must acquire their ownership interests through the same legal instrument or document. In practical terms, this means that if two or more individuals are buying a property together, they should be listed as co-owners on the same deed or other appropriate legal documentation. For instance, if three individuals are named as joint tenants in a single deed transferring the property to them, joint tenancy is valid.

This requirement is critical in maintaining true ownership status. Should multiple ownership documents exist, it may be difficult or inefficient to correctly identify not only who owns property but when their ownership took place. In addition, because joint owners have shared financial interests in a property, it is important that all joint owners are clearly defined in the event of financial distress.

Interest

Interest refers to a joint owner's apportionment of the property. Interest ensures that each joint tenant holds an equal and undivided share in the property. This means that all co-owners have the same percentage of ownership. For example, in a joint tenancy with two individuals, each joint tenant would have a 50% interest. In a joint tenancy with three individuals, each joint tenant would have a 33.33% interest, and so on.

There are other forms of legal ownership where owner distribute is not necessarily fair or equal; in general, for most real estate transactions, unless otherwise explicitly stated and agreed to by all parties, each joint owner will share in equal interest.

Possession

Possession means that all joint tenants have an equal right to possess and use the entire property. It implies that no joint tenant can claim exclusive rights to any specific part of the property. Instead, all co-owners have the right to access and use the entire property as a whole.

This concept distinguishes joint tenancy from other forms of co-ownership, like tenancy in common, where each co-owner may have distinct, separate portions of the property. In addition, it solidifies the liability aspect of the property should something go wrong. For example, should substantial water damage occur in a single room, all joint owners are often liable to share in those costs (ignoring any explicit causes for damage or separate agreements).

Financial Implications of Joint Tenancy

Joint tenancy in property ownership involves quite a number of financial aspects. Joint tenants hold an equal share of the property, ensuring equal financial burden and benefits are shared among all co-owners. They also share the costs of property acquisition, such as down payments, closing costs, and associated expenses.

Post-close, joint owners are collectively responsible for mortgage payments and maintaining good credit standing. Property taxes are shared equally among all co-owners, regardless of individual contributions. Maintenance and repairs are also to be shared equally among joint owners , with decisions regarding repairs and improvements made jointly and expenses divided equally.

Income derived from the property should be shared equally among all joint tenants based on ownership interest percentages. In addition, gains (and resulting capital gains taxes) may apply if the property is sold with tax implications varying depending on local laws, ownership duration, and each joint tenant's share in the property.

Severing Joint Tenancy

Joint tenancy in property ownership can be severed through various methods. A voluntary agreement allows all joint tenants to terminate the joint tenancy and convert it into a tenancy in common, often through a written agreement or contract. Should all parties not agree, this voluntary agreement often experiences headwinds and may not be able to be fully executed.

Conveyance involves transferring or selling a joint tenant's share of the property to a third party, who becomes a tenant in common with the remaining joint tenants. In some cases, the existing tenants may review or approve of the new owner (i.e. consider partial ownership of professional sports teams that must adhere to a rigid review process with strict ownership requirements).

Partition actions are legal proceedings that can be costly and time-consuming, and involuntary severance may be ordered by a court due to certain circumstances. This may arise due to a dispute or conflicting interests among the joint tenants.

Advantages and Disadvantages of Joint Tenancy

Although joint tenancy has a number of advantages, there are some distinct disadvantages as well that should be considered before entering into the arrangement.

Pros of Joint Tenancy

As mentioned earlier, as long as one joint tenant survives, it avoids the headaches of clearing the property through an estate via a will. Typically, a person's will upon death goes through probate, which is a legal process whereby the courts review a will to validate it. Typically, when a person dies, their assets cannot be accessed or claimed by the survivor until probate releases them.

The probate process also helps determine how a deceased party's assets are distributed if the person doesn't name beneficiaries or doesn't have a will in place. However, the process can easily take months to sort out. A joint tenancy avoids probate and the lengthy legal process that allows the joint tenant to take ownership of the assets immediately.

In addition to sharing the benefits of the property, all of the parties in a joint tenancy share responsibility for the property. For example, one person in the couple can’t take out a mortgage loan on the property and leave their partner with the debt. The joint tenancy applies for all of the assets as well as the debts—meaning if a loan is taken out on the property, both are responsible for the debt.

Cons of Joint Tenancy

Divorce or marital issues can complicate a joint tenancy. As stated earlier, all debts are owned by both parties, and neither can sell their assets that are owned jointly without consent from their partner.

Another disadvantage of joint tenancy can appear in the handling of the asset upon the death of one or more of the joint tenants. Joint tenancy gives all the rights to the survivor, so even if the deceased was hoping to pass the value of the property to designated heirs, there is no legal obligation for the survivor to honor that request.

Joint Tenancy vs. Tenancy in Common

One way to avoid losing control of the disposition of the property upon death, some joint owners opt for tenancy in common (JTIC) instead of a joint tenancy. Tenancy in common allows for percentage-based ownership, and shares can be traded and tenants added throughout the life of the arrangement rather than just at inception.

In other words, upon death, the assets don't automatically go to the surviving partner as with joint tenancy—instead, the tenancy in common allows the assets to get distributed as stipulated in the decedent's will and local laws.

The Bottom Line

Joint tenancy is a legally simple way for two or more people to share equal interests in real estate or another form of property. When one tenant dies, there is no need to probate their share of the property with their estate. Instead, the share belonging to the deceased tenant is simply passed on to the remaining joint tenants.