Joint tenants and tenants in common: how to hold title

When two or more people buy property together they must decide how to hold title. There are two forms in Australian land law: joint tenancy and tenancy in common. The choice is made on the transfer document at settlement, appears on the certificate of title, and has consequences that last for as long as the property is owned and beyond.

It is frequently treated as a formality and decided in passing. It should not be. The choice determines what happens to a share on death, whether ownership can be unequal, how rental income and deductions are divided, and how easily one owner can exit.

Joint tenancy

Joint tenants hold the whole of the property together. No owner has a distinct share; each has an equal interest in the whole.

The defining feature is the right of survivorship. On the death of a joint tenant, the interest passes automatically to the surviving joint tenant or tenants. It does not form part of the deceased's estate and cannot be dealt with by their will. A will purporting to leave a joint tenancy interest to someone else has no effect on it.

This makes joint tenancy simple and, for many couples, appropriate. The transfer on death is administrative rather than testamentary, usually requiring only a notice of death lodged with the land titles office and a death certificate. There is no need to wait for probate, and no risk of the property being tied up in a contested estate.

In several jurisdictions joint tenancy is also the default. In Victoria, for example, where no tenancy is expressed in a transfer of land, section 60 of the Transfer of Land Act deems the co-proprietors to be joint tenants. Modern electronic titles state the tenancy expressly in the proprietorship section.

Tenancy in common

Tenants in common each own a distinct, separately identifiable share. Shares may be equal or unequal, and are recorded on title as fractions, commonly expressed in hundredths or other denominators.

There is no right of survivorship. On death, a tenant in common's share forms part of their estate and passes under their will or, if there is none, under the intestacy rules of the relevant state. A tenant in common may leave their share to anyone.

A tenant in common may also deal with their share during their lifetime. In principle a share may be sold, mortgaged or transferred without the agreement of the other owners, although in practice a lender holding a mortgage over the whole property will constrain this, and a fractional share in a residential property is difficult to sell to a stranger.

The two forms compared

Feature	Joint tenants	Tenants in common
Nature of the interest	Equal interest in the whole	A distinct share, which may be unequal
On death	Passes automatically to the survivors	Forms part of the estate and passes under the will
Can be left by will	No	Yes
Unequal contributions recognised on title	No	Yes
Share can be dealt with separately	Not while the joint tenancy exists	Yes, subject to any mortgage
Division of rental income	Equally	In proportion to the recorded shares
Typical use	Married and de facto couples	Blended families, friends, siblings, business partners, investors

How rental income and deductions are divided

For an investment property the form of title determines the tax outcome, and it is not a matter of choice at tax time.

The ATO's position, set out in Taxation Ruling TR 93/32, is that co-owners who are not carrying on a business of letting rental properties must divide the income and expenses in line with their legal interest in the property. Joint tenants each hold an equal interest, so each must include half of the total income and expenses. Tenants in common divide income and expenses in proportion to their recorded shares, so an owner with a 20 per cent share includes 20 per cent of both.

Two consequences follow. The first is that an agreement between co-owners to split income differently from their legal interests is generally ineffective for tax purposes. The second is that for an investment property held by people on different marginal rates, the ownership proportions recorded on title determine where the income or the deduction lands, and that decision is made at purchase rather than later.

An exception applies where the co-owners are carrying on a business of letting rental properties, in which case the net profit or loss is divided according to the partnership agreement. That is a high threshold and does not apply to most people who own one or two rental properties. A registered tax agent should confirm the position. The guide to investment property tax deductions covers what may be claimed.

Loan liability is not divided

This is the point most often misunderstood, and it deserves emphasis.

Holding title as tenants in common in unequal shares does not divide the loan. Where two people borrow together, lenders almost always require both to be borrowers on the whole loan, and liability is joint and several. Each borrower is liable for the entire debt, not a proportionate part of it.

An owner with a 20 per cent share on title can therefore be pursued for 100 per cent of the loan if the other owner does not pay. The ownership proportions govern the division of the property and its income; they do not limit liability to the lender.

The debt also counts in full against each borrower when either of them next applies for credit. Two people who buy together and later wish to buy separately will each be assessed as carrying the whole of the joint debt, which affects serviceability and the debt to income ratio, as set out in the guides to how much you can borrow and debt to income ratios.

Choosing between them

The following patterns are common, and none is a rule.

• Married and de facto couples frequently choose joint tenancy, because survivorship achieves the intended result simply and avoids the estate process at a difficult time.
• Blended families frequently choose tenancy in common, so that each partner can leave their share to their own children while the surviving partner's position is addressed through a right of residence or a life interest in the will.
• Friends or siblings buying together almost always choose tenancy in common, because contributions differ, because neither intends the other to inherit their share, and because an exit mechanism is needed.
• Investors generally choose tenancy in common, because the shares determine how income and deductions are allocated between people on different marginal rates.
• Parents assisting a child to buy commonly use tenancy in common with shares reflecting contributions, which records the position on title rather than relying on an informal understanding.

Asset protection is sometimes raised as a reason to prefer one form. The position is complex, differs between jurisdictions, and depends on circumstances including bankruptcy and family law. It is a question for a solicitor rather than a general rule.

What happens on death in practice

The difference between the two forms is most visible at the point it matters most, and it is worth setting out what each involves.

For joint tenants, the surviving owner lodges a notice or application with the land titles office together with the death certificate. The register is updated to show the survivor as the sole proprietor. Probate is generally not required for this step, the property does not pass through the estate, and it is not available to satisfy gifts under the deceased's will. Where there is a mortgage, the lender must be notified, and the survivor becomes solely responsible for a debt for which they were already jointly and severally liable.

For tenants in common, the share forms part of the estate. The executor generally requires a grant of probate before dealing with it, which takes time, and the share then passes under the will. Where the beneficiary is not the surviving co-owner, the result is that a stranger to the original arrangement becomes a co-owner of the property. This is precisely the intended outcome in a blended family and precisely the unintended one where two friends bought together and neither turned their mind to it.

A mortgage complicates the second case. The deceased's estate remains liable for the debt, the surviving co-owner remains jointly and severally liable for all of it, and the beneficiary inherits a share in a property they may be unable to refinance. Life insurance, held personally or through superannuation, is the usual answer, and co-owners who are not a couple are well advised to consider whether it is in place.

Where the share on title does not match the contributions

A recurring source of dispute is a property held as joint tenants, or as equal tenants in common, where the contributions were unequal. A parent contributes the deposit, or one partner brings substantially more capital, and nothing is recorded.

The law may recognise the difference through a resulting or constructive trust, but establishing one requires evidence and, frequently, litigation. It is not a substitute for recording the position at the outset. Where contributions are unequal and both parties intend that to be reflected, the options are to hold as tenants in common in proportions matching the contributions, or to hold in some other proportion and document the arrangement separately by written agreement or by a loan recorded between the parties.

Family law adds a further layer for couples, since a court dealing with a property settlement is not bound by the proportions on title and considers contributions and future needs. That does not make the title irrelevant, but it means a couple should not assume that recording unequal shares determines the outcome of a separation. This is a matter on which a family lawyer should advise.

Severing a joint tenancy

A joint tenancy can be converted into a tenancy in common. This is called severance, and it can occur in several ways: by agreement between the owners, by one owner transferring their interest to themselves as tenant in common, by a unilateral dealing inconsistent with the joint tenancy, or by a course of conduct indicating the owners treat their interests as separate.

Unilateral severance by transfer is available in most Australian jurisdictions and does not require the consent of the other joint tenant, although notice requirements and procedures differ by state. The effect is to convert the interests into equal shares held as tenants in common, so that survivorship no longer applies.

Severance is commonly used when a relationship breaks down, where the intention is to prevent a former partner from taking the whole property automatically on death before a settlement is finalised. Where that is the concern, it is usually urgent, and legal advice should be obtained promptly.

Changing the arrangement later

Altering the form of tenancy, or changing the proportions held by tenants in common, is a dealing with land and may have duty and tax consequences.

• Transfer duty. A transfer of an interest in land is generally dutiable on the value of the interest transferred. Exemptions exist in most jurisdictions for transfers between spouses or domestic partners of a principal place of residence, and for transfers under family law orders or binding financial agreements, but they do not cover every situation.
• Capital gains tax. A change in beneficial ownership is generally a capital gains tax event for the transferor. Where the property is a main residence the exemption may apply, but where it is an investment property a gain may be assessed even though no money changes hands.
• Lender consent. Where a mortgage is registered, the lender's consent is required, and the change will usually trigger a reassessment.

Because of these consequences, it is considerably cheaper to hold title in the intended form from the start than to correct it later. This is the practical reason the decision deserves attention before settlement rather than after.

A co-ownership agreement

Where the co-owners are not a couple, a written co-ownership agreement is worth preparing regardless of the form of tenancy. It sits alongside the title and deals with the matters title cannot.

Matters commonly addressed include how contributions to the deposit, repayments, rates, insurance and maintenance are shared; what happens if one owner cannot meet their share; whether one owner may occupy the property and on what terms; how decisions about improvements are made; how the property is valued if one owner wishes to exit; whether the remaining owner has a right of first refusal and over what period; and how a deadlock or a forced sale is resolved.

These questions are straightforward to answer while relations are good and very difficult afterwards. Without an agreement, an owner who wants to exit and cannot agree terms may have to apply to a court or tribunal for the appointment of trustees for sale, which is slow and expensive.

This article is general information and not legal, tax or financial advice. Land law, duty and severance procedures differ between states and territories, and a solicitor should advise on the form of ownership for any particular purchase. Buyers arranging finance for a joint purchase may request a free assessment from an accredited broker, or read the guide to home loan types.