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CO-OWNERSHIP, TENANTS IN COMMON, AND JOINT TENANTS
Like a majority of Australians, Queenslanders have the great Australian dream of owning their own home.
Once past the excitement of making the decision to buy and actually choosing a home most people need to consider how the property is held if there is going to be more than one owner.
In Queensland there are two methods for Co-owners to hold property and these are joint tenants and tenants in common.
This will of course only apply where there are two or more owners of a property but not only will it apply to persons who own a property but also to persons who take a lease of or mortgage over, a property.
We shall advise on leasing and mortgaging later in this paper.
Co-Owners of land in Queensland must be registered as joint tenants or tenants in common. If a transfer of property is silent on the issue it is recognised that the Co-owners hold as tenants in common in equal shares.
Tenancy in Common
Two or more persons may hold property as tenants in common in any shares they choose.
A, B,& C purchase a property for $90,000.
A contributes $20,000, B, $30,000 and C, $40,000.
The transfer is noted as follows "A as to 2/9 share, B as to 3/9 share and C as to 4/9 share as tenants in common". The holding does not have to represent the party's respective contributions, however as will be seen later it is preferable. Each tenant in common has the right to deal with their share of the property separate from the others. This means the individual owners can sell or mortgage their share of the property, although practically it can be difficult, legally the share of a tenant in common can be dealt with separately of the other co-owners.
An important difference between tenants in common and joint tenants is how the individual owner's share passes upon the death of the owner. When a tenant in common dies their share of the property passes in accordance with their instructions as set out in their will. It is imperative if you hold any property as a tenant in common that you have a valid and enforceable will, which specifies the person or the organisation which is to receive the benefit of your share of the property.
If you have no valid enforceable Will, the Public Trustee will administer your estate and the share may not pass to the person or organisation you intended.
Tenants in common is the only holding which allows you absolute control over who will receive your share upon death, for as you will see with a joint tenancy this is pre-determined and you cannot change your mind.
Joint tenants hold property in equal shares no matter how many joint tenants there are.
Upon the death of a joint tenant the share passes to the other joint tenant/s (in equal shares if more than one) automatically without reference to any intention of the deceased person, as may be set out in a will.
The most common use of holding as joint tenants is a husband and wife situation where upon the death of the husband or wife their interest automatically passes to the surviving party.
For example, husband and wife hold property as joint tenants. Husband dies therefore wife is automatically the owner of the property.
A, B & C hold as joint tenants. C dies and A and B become the outright owners of the property.
As we note below however there are wider considerations requiring careful thought before entering into either type of tenancy.
WHAT IF YOU HAVE A DISPUTE WITH YOUR CO-OWNER?
No matter which type of holding is chosen, the Property Law Act (QLD) 1974 (PLA) provides for the resolution of disputes between Co-owners.
Most disputes will be resolved between the Co-owners themselves or perhaps with some level of mediation.
Disputes which are not able to be resolved or which affect the efficient administration of the property will be resolved by an application to the Court pursuant to section 38(1).
The usual order sought is to have a trustee appointed to oversee the sale of the property. There is no absolute right to such an order and other factors can and will (if appropriate) be considered by the court.
In summary however the main method of ending a Co-ownership arrangement, be it joint tenants or tenants in common, is by the sale of the property.
CAN A TENANCY BE ALTERED?
If you choose one particular holding over the other it is possible to alter the holding to the other form.
The most common example of this is the severing of a joint tenancy in favour of a tenancy in common.
The alteration can be done with either form of holding but legal fees and registration costs will be incurred if the choice is not properly thought through in the first instance and needs to be corrected.
WHAT ARE THE CONSIDERATIONS?
A. Family Law Proceedings
Unfortunately in Australia 4 out of 10 marriages fail and therefore some degree of planning is prudent. Of particular importance is correctly recording the contributions of each party. It does not make any sense to hold as joint tenants or tenants in common in equal shares if the contributions of the parties do not reflect this.
The courts will consider this in resolving martial/de-facto property disputes and this can go against the party who has made the bigger contribution.
A and B buy land.
A contributes 60% and B contributes 40%.
The property should be held as tenants in common A 3/5 (60%) and B 2/5 (40%).
(Remember the property holding can be broken down to any fraction which represents the particular party's interests.)
B. Asset Protection
It may be prudent to consult your solicitor or accountant before deciding on a holding if one of the parties is exposed to greater financial risk or the threat of bankruptcy.
There will need to be a trade off of considerations in these cases particularly if the contributions will not be reflected in the holding, however the preservation of the property may be worth it.
A, B & C contribute equally to buy land.
C is a Stockbroker who may be sued and declared bankrupt at any time (if he advises badly or the stock market crashes).
Subject to other factors it may be decided to hold the property A, 49/100 B, 49/100, C 2/100, as tenants in common. Thereby still giving C some ownership but (hopefully) enough to deter any creditors from attacking this particular asset.
C. Estate Planning
The benefits of properly and effectively planning for your death you will never get to enjoy however the thought of providing for your family should be somewhat comforting.
Consider this scenario - A husband and wife own a property, being the matrimonial home and main assets as joint tenants. Husband dies and property goes directly to wife. Wife finds new husband and changes will to leave property to him. Wife dies and property goes to new husband and children of original husband and wife receive nothing.
Through the use of Testamentary Trust Wills this can be avoided and it can be insured that the assets will remain for the benefit of the children.
For this to be possible the holding must be that of tenants in common. The share will not matter because as you will recall, tenants in common is the only holding which allows you to deal with your interest upon your death.
These considerations are by no means an exhaustive list. All facts and circumstances should be considered and appropriate professionals consulted before making this decision.
Co-owners in common may have an agreement between them known as a Co-owners agreement.
The agreement can cover many different issues but normally relates to the obligation of one Co-owner to offer his/her share to the other/s before selling to another person.
It may however cover a variety of areas such as splitting of income and expenditure and distribution of funds upon sale.
These types of agreements are extremely useful for clarifying all owners rights and obligations and avoiding disputes.
LEASES AND MORTGAGES
Briefly, when more than one person rents a commercial premises (i.e. you are the tenant) you must decide whether you will hold as tenants in common or joint tenants.
The same meanings and effects apply to those terms as for holding property.
Some of the same considerations apply however specific issues relating to the business or undertaking may need to be addressed and your accountant and/or solicitor should be consulted.
More than one person providing finance and taking a mortgage over another person's property will also have to decide whether to hold as tenants in common or joint tenants.
Again different considerations will need to be taken into account and professional advice should be sought.
This Information Outline is provided courtesy of Hall Payne Lawyers who are experienced in this area of law. They are located at Level 9, 344 Queen Street, Brisbane, QLD 4000 or call them on (07) 3221-2044 if you would like more information on this legal topic, or you wish to obtain formal advice regarding your situation.
Hall Payne Lawyers are an established Queensland firm practicing in the areas of employment law (unfair dismissal etc), accident compensation (WorkCover, motor vehicle accident, personal injuries), anti-discrimination & harassment, consumer law, family law, wills & estates, criminal law and conveyancing. Hall Payne Lawyers are a founding member of the Australia-wide PeopleLaw group.
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