Tenancy in Common and Other Ways to Co-Own Property

When two or more individuals own real estate – whether it’s a condo, a primary residence, a vacation home, or piece of land – the relationship between the owners is particularly important.

The form of ownership of the property affects how property is transferred to someone else. For example, if a property owner dies, is there anyone else who shares ownership? Will the property need to go through probate? These are some of the questions you may want to take into consideration.

As part of your estate plan, it’s a good idea to make sure you have the right form of ownership for your property. Continue reading to learn more about three forms of tenancy agreement. Your unique situation will dictate which of these legal arrangements may be the most suitable one for you.

What Are Tenants in Common?

In property law, tenancy in common allows an owner the greatest flexibility to transfer the property as they wish. Each co-tenant in a tenancy in common has an interest in the property. They are free to transfer this interest during life or through a will.

The co-tenants can have different ownership interests. For example, three owners of real property may own equal shares of it. Or they could have differing shares of the property. As tenants in common, they might own 5 percent, 35 percent, and 60 percent of the property, respectively.

Each tenant in common can sever their relationship with the other tenants by conveying their interest to another party. This third party then becomes a tenant in common with the other owners. A set of friends who are looking to own a lake house together might be a good candidate for this type of agreement.

Joint Tenancy

Joint tenants, on the other hand, must have equal ownership interests in the property. So, three owners of, say, a parcel of land, would each have a one-third interest in the property. If one of the joint tenants dies, their interest immediately ceases to exist. The remaining joint tenants then own the entire property.

A joint tenancy agreement has its pros and cons. The advantage to joint tenancy is that it avoids having an owner’s interest probated upon their death. (Read more in another article about the basics behind the probate process.)

A disadvantage to both joint tenancy and tenancy in common agreements, however, is that creditors can attach the tenant’s property to satisfy a debt. So, for example, if a co-tenant defaults on debts, their creditors can sue in a “partition action.” This can result in having the property interests divided and the property sold, even over the other owners' objections.

Tenancy by the Entirety

About half of states across the country allow a third form of tenancy, tenancy by the entirety. Note that this option is available only to married couples or, where applicable, civilly united couples.

Tenancy by the entirety is based on the societal value of protecting the family. One tenant cannot convey their interest on their own, unlike with the other tenancies. Upon the death of one spouse, their interest automatically passes to the other spouse, as with joint tenancy. The creditors of one spouse cannot attach the property or force its sale to recover debts unless both spouses consent.

Creditors may place a lien on property held in tenancy by the entirety. However, they are out of luck if the debtor dies before the other spouse. (The surviving spouse will take ownership of the property free and clear of the debt. They also can avoid having to go through the probate process for the property.)

This is why both spouses are required to sign the mortgage on their property for the mortgage to be valid. Unmarried couples who buy property and subsequently marry each other should re-title the deed as tenants by the entirety. This way, they can avail themselves of the greater protections this form of tenancy offers.

In most states, if the form of tenancy that the tenants intended is ambiguous, the tenancy will be assumed to be a tenancy in common. Note, too, that other forms of property co-ownership exist in certain states.

Work With an Estate Planning Attorney

Contact a qualified estate planning attorney to determine which form of ownership may be best for your particular circumstances. Experts in this area can also help you shape other parts of your estate plan. This can include assisting you in drafting a will, powers of attorney, or other key documents. Find an estate planning attorney near you today for guidance on protecting your assets now and in the years to come.

For related reading on tenancy agreements and property ownership, you may want to check out the following articles:

• Home Ownership When Parents and Adult Children Live Together
• 3 Common Probate Questions: Estate Planning Basics
• Protect Your House When You Want to Qualify for Medicaid
• How Community Property Affects Estate and Tax Planning
• Can We Divide the Sale of Our House Equally Between Two Sons?