Introduction
If you are about to embark on the journey of buying property with someone else, you should read this article or do a little research from money management websites such as Love Money. Doing this may help you that purchase that will suit your needs. Similarly if you already own a property with someone else, this article will also be useful reading. Essentially, you must consider how the property is held if there is going to be more than one owner.
Usually, as is the case with all legal matters, everything is blissful until there is a dispute. Land law is a particularly complicated area of law. You should therefore ensure you understand your rights and obligations before a dispute occurs.
Note: while the law maybe similar in all states, this article has been written with only Queensland in mind.
Co-owners in Queensland
In Queensland there are two methods for co-owners to hold property. These are:
- Joint tenants; or
- Tenants in common.
This distinction also applies to persons who take a lease of or mortgage over, a property.
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. Of course you might not own the property in equal shares – it might be 60/40, or 80/20. If the law presumes 50/50, one of you will lose out.
Tenancy in Common
This is where two or more individuals hold property as tenants in common in any shares they choose.
For example:
- 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 this is preferable as it makes things easier for the courts to decide come a dispute.
Each tenant in common has the right to deal with their share of the property separate from the others. So each individual can technically sell or mortgage their share of the property. Of course in practise, this is more difficult.
Why would I choose a tenancy in common?
The most important advantage of a tenancy in common is that your shares are protected in the proportions you designate.
This is best illustrated by the death of a tenant. 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.
A tenancy in common is the only holding which allows you absolute control over who will receive your share upon death. If you are in a joint tenancy, the situation is different, as you will see below.
Joint Tenancy
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. If the husband dies the wife is automatically the owner of the property.
As we note below however there are wider considerations requiring careful thought before entering into either type of tenancy.
What if there is a dispute between co-owners?
Whether you choose a tenancy in common or a joint tenancy, the Property Law Act (QLD) 1974 (PLA) provides for the resolution of disputes between Co-owners.
Aside from logical mediation and negotiation, a tenant can apply to the court pursuant to section 38(1) of the 1974 Act. Most commonly, the court will appoint a trustee to oversee the sale of the property. However, there are other solutions.
In summary therefore 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 I change my mind?
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.
Considerations when changing the type of holding
Family Law Proceedings - Due to the high rate of divorces, some degree of planning is essential, even if this causes slight upset to either or both parties at the time. Of course it is important to correctly record your particular contribution accurately so that the other party (your husband or wife) doesn’t get the better deal. Simple put, 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.
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.
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 – A husband and wife own a home. The husband dies - the property goes directly to the wife. The wife then finds new husband and changes her will to leave the property to him. The wife then dies and the property goes to the new husband.
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, you must hold as tenants in common.
How do I ensure the correct Co-ownership?
You need a document to record your ownership contributions. This is known as a Co-owners agreement.
These types of agreements are extremely useful for clarifying all owners rights and obligations and avoiding disputes.