Real Estate PL Topic - Tenancy in Common and Joint Tenancy

Tenancy in Common and Joint Tenancy

Tenancy in Common

A parcel of real estate may be owned by two or more people as tenants in common. In a tenancy in common (TIC), each tenant holds an undivided interest in the property. The co-owners have unity of possession, meaning that each owner is entitled to possession and use of the entire property, even though each holds only a fractional ownership interest. If there are two co-owners of a property, for instance, and no other division is specified in the deed conveying the property, each owns a one-half interest. It is the ownership interest, not the property, that is divided.

The deed creating a tenancy in common may or may not state the fractional interest held by each co-owner. If no fractions are stated, the tenants are presumed to hold equal shares; for example, if five people hold title, each owns an undivided one-fifth interest. Each of the shares can also be held by a couple, whether married or in a civil union.

Because the co-owners own separate interests, they can sell, convey, mortgage, or transfer their individual interests in the TIC without the consent of the other co-owners. A share owned by a married couple can be transferred only with the agreement of both parties.

No individual tenant may transfer the ownership of the entire property. When one co-owner dies, the tenant’s undivided interest passes according to the decedent’s will, to the heirs identified by statute if there is no will, or by the terms of the decedent’s living trust, if one was established prior to death. (See Figure)

When two or more single individuals or couples acquire title to real estate and the form of ownership is not indicated, the new owners are usually determined to have acquired title as tenants in common. The TIC has become popular in expensive urban areas because it allows a multi-family dwelling to be sold to multiple owners without the need to convert the entire property to the condominium form of ownership, which may entail a lengthy and expensive approval process. The downside of a co-owner’s TIC interest is that it may not be as easy to sell as property held in a different form of ownership. Formation of a TIC requires use of an attorney to clarify the terms of ownership.

Joint Tenancy

Most states recognize some form of joint tenancy in property owned by two or more people, whether married or unmarried.

The distinguishing feature of a joint tenancy is the right of survivorship. Upon the death of a joint tenant, the deceased’s interest transfers directly to the surviving joint tenant or tenants. Essentially, there is one less owner. No formal legal action is required, although the death certificate of the deceased owner should be made part of the public record and a copy retained by the surviving owner(s).

If there are only two joint tenants, the death of one of the owners terminates the joint tenancy. If there are three or more joint tenants, at each successive joint tenant’s death, the surviving owners acquire the deceased’s interest. In either case, the last survivor takes title in severalty and has all the rights of sole ownership, including the right to pass the property to any heirs. (See Figure)

Creating a Joint Tenancy

A joint tenancy can be created only by the intentional act of conveying a deed or giving the property by will or living trust. It cannot be implied or created by operation of law. The instrument must specifically state the parties’ intention to create a joint tenancy, and the parties must be explicitly identified as joint tenants.

To create a joint tenancy, four elements or unities are needed, which can be remembered as PITT: possession, interest, time, and title.

• Unity of possession – all joint tenants hold an undivided right to possession.
• Unity of interest – all joint tenants hold an equal ownership interest.
• Unity of time – all joint tenants acquire their interests at the same time.
• Unity of title – all joint tenants acquire their interests by the same document.

PITT:
Possession
Interest
Time
Title

Terminating a Joint Tenancy

A joint tenancy is destroyed when any one of the four unities of joint tenancy is terminated. Unless prohibited by state law, joint tenants are free to convey their individual interest in the jointly held property, but doing so destroys the unities of time and title as to that interest. This means that the new owner cannot be a joint tenant, but instead is a tenant in common. If there were only two joint tenants to begin with, the joint tenancy is terminated. If the joint tenancy had more than two owners to begin with, and one of them conveys that interest, there will still be a joint tenancy, but only as to the interests held by the remaining joint tenants; the new owner is a tenant in common. (See Figure)

Watch this video to review.