Tenants in Common; so what does it really mean?

For many, purchasing a property as Tenants in Common, is an attractive option, as it offers more flexibility than Joint Tenancy. For a refresher on what it means to own a property as ‘Tenants in Common’ or ‘Joint Tenants’, please see our blog post titled ‘Joint Tenants or Tenants in Common; which one?’ for further information.

Owning a property as Tenants in Common allows you to own a defined share in a property. This share can be transferred, sold or gifted through your Will.

Although this option of manner of holding may have its benefits, it is important to understand the versatility offered through owning a property as Tenants in Common with other individuals/entities, like anything in life, comes with risks.

If you are considering purchasing a property with others as Tenants in Common, we recommend considering the below risks before entering into a Contract of Sale of Land.

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Security of Property and Potential Issues with Creditors:

Arguably, the biggest risk when owning a property as Tenants in Common is the complete freedom that each owner has with their share in the property. For example, one owner may use their share in the property as security to borrow money from a financial institution, therefore leaving their share in the property subject to unwanted creditors.

Additionally, it is important to understand that owning a property with another individual/entity, if that proprietor were to enter liquidation or bankruptcy, the property may be looked at to recoup debts owed. As such, it is incredibly important you consider and make enquiries as to the financial position of individuals you intend to purchase property with.

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Death of a Proprietor:

As mentioned above, by owning a property as Tenants in Common, each individual/entity owns a defined share in the property. When a proprietor listed on title passes away, their defined share will pass according to their express wishes set out in their Will.

Death of an owner will not change the ownership rights of the other proprietors. However, this means the existing proprietors will now share the property with a third-party who has inherited their portion through the estate.

As such, this can lead to issues if the third-party is unaware of any businesses run from the property or property usage. Further, there may be discrepancies between the new proprietor as to whether the property is to be sold.

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Sale of Individual Share:

An owner has a legal right to transfer or sell their specific share in the property to a third party, this new owner may not agree with the other owner's use of the property or have knowledge of investments. This might not only cause unwanted disputes between owners who may disagree with the eventual sale but can also cause extensive unwanted legal costs.

An ownership dispute will often result in VCAT or court proceedings. To put it simply, an owner can force the sale of co-owned property with an order obtained from VCAT. Being on either side of a VCAT ownership dispute can cause enormous stress and financial strain to parties involved, nor is it a quick process. As such, we recommend discussing how and when the property will be sold with other owners prior to entering a Contract of Sale of Land.

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Tenants in Common Agreement:

So now you might ask, how do we mitigate these risks when owning a property as Tenants in Common?

When considering owning a property as Tenants in Common, we highly recommend speaking with one of our experienced Property Lawyers about a Tenants in Common Agreement.

This is a legally binding agreement that can be put in place between owners which establishes the ‘rules’ surrounding the property. This agreement may assist in avoiding further legal issues down the track, as the rules are expressly agreed between the parties. For example, the agreement could contain rules governing circumstances such as:

• What happens if someone wishes to sell their share in the property;

• How profits earned from the property are distributed;

• Prohibiting owners from using their share in the property as security for a debt;

• How bills, liabilities and income are to be split; or

• Anything further that relates to your individual circumstances and use for the property.

Even if you already own a property as Tenants in Common, you still have the ability to enter into a Tenants in Common Agreement now, if you wish.

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Please contact our experienced and friendly property team to discuss your conveyancing transaction and allow us to guide you through the sometimes-daunting process of deciding how to own your property. You can email us anytime at reception@wakefieldlawyers.com.au or call our office during business hours on 03 5623 5166.

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Disclaimer: The information in this post is general in nature. This does not constitute legal advice and should not be relied on as such. Please contact one of our Lawyers if you are seeking advice about a specific legal matter.

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