Tenancy in Common

December 26, 2006

Tenancy in common is a legal term that refers to property held by two or more people with each having ownership of a certain, undivided, portion of the property.

Each person has access to and use of the entire property but only owns a portion of it. Upon the death of an owner, the portion of the property owned by the deceased becomes a part of that person's estate and does not automatically go to the other owner or owners.

Two very common types of tenancy in common are joint bank accounts and real estate. Here, two or more people can share a bank account or a piece of real estate while still ensuring that their individual share of the asset will go to their estate (and be transferred to their heirs according to their will).

This is in contrast to joint tenancy, which is another legal means by which property can be held in common. The main difference between tenancy in common and joint tenancy is that, with joint tenancy, the ownership of an owner's share automatically transfers to the surviving owners upon that person's death.

Why would a person want to have tenancy in common instead of joint tenancy or vice versa?

People generally choose joint tenancy when they want the other party or parties to have their portion upon death. Joint tenancy is usually used by married couples or by close relatives such as parents and children, siblings, etc. In these cases the parties usually want the other to have their portion of the property upon death and joint tenancy makes it simple with no need for a will (for this property only) or having to worry about the court awarding their share to someone else if they die intestate. For most people this will work, but you might want to check the inheritance laws in your state or jurisdiction to make sure that the property in question will pass automatically to the other joint tenants upon death.

Tenancy in common, on the other hand, is generally chosen when there is a need for two or more individuals to share a piece of property but the relationship is not such that any of them want to pass the property on to the other holders in the event of death. Two or more people who share living quarters and decide to purchase a home together in order to benefit from the income tax deduction (in the U.S.), two or more people who wish to purchase property to rent out, two relatives or close friends who want to share a piece o f resort property but pass it on to their respective children upon death, etc. are examples of the situations in which people would choose tenancy in common.

A friend of mine was once living in the upper unit of a duplex and learned that the owner planned to sell. He couldn't afford to purchase the house alone and approached me knowing that I was looking to purchase a home for the tax break but didn't want a mortgage payment higher than the rent I was paying for the apartment I lived in at the time.

We went together and brought the house with me taking the lower unit and my friend remaining in the upper unit. We took the property as tenants in common and opened a bank account, also as tenants in common, at the bank where we got the mortgage. Each of us then deposited our half of the mortgage payment to the account each month and the bank then withdrew the full payment automatically. Three years after buying the property both of us married our respective fiancé's and moved out of town. We kept the house for another ten years as a rental property, then sold it and split the proceeds 50/50.