Joint tenants or tenants in common: which should you choose?

The difference in one paragraph

Joint tenants hold the whole property together rather than in parts. Tenants in common each hold a share of it, and those shares do not have to be equal.

Neither is better. They answer different questions, and the right one depends on what you want to happen when one of you dies, separates, or wants out.

What joint tenancy actually does

The defining feature of a joint tenancy is the right of survivorship. When one joint tenant dies their interest is extinguished, and the surviving joint tenant's interest is correspondingly enlarged.

In Western Australia that is dealt with by a survivorship application to Landgate rather than through the estate. The property does not wait on probate to change hands.

For a couple buying a home together this is usually what they want, and usually what they assume is happening anyway. It is simple, it is quick, and it keeps the family home out of the administration of the estate.

What tenants in common actually does

Tenants in common each own an individual share of the whole property. The shares are recorded on the title, and they do not have to be equal, so a 70 and 30 split is as valid as half each.

A tenant in common can transfer their share to somebody else without needing permission from the other owners. That share can also be left in a will, because it forms part of the estate.

It is the structure that suits unequal contributions, second relationships where each partner has children from the first, friends buying together, and anybody who wants their part to go somewhere specific.

The default in Western Australia, and why it matters

Unless the certificate of title states otherwise, co-owners in Western Australia are presumed to hold the land as joint tenants.

So the structure is not something you get asked about in every case. It is something you end up with unless somebody makes a decision and records it.

That is worth knowing before settlement rather than after. Changing it later is a transfer, with the paperwork and the potential duty consequences a transfer carries.

What your lender cares about, which is a different question

This is the part we can speak to directly, and it is the part most articles on the subject leave out entirely. Ownership and liability are two different things.

Where two people borrow together, each borrower is generally liable for the whole of the debt rather than a share of it. Owning 30 per cent of the property does not mean owing 30 per cent of the loan.

The practical consequence is worth stating plainly. If the other borrower stops paying, the lender can look to you for the full repayment, and the arrears sit on your credit report as well as theirs.

• Servicing is assessed on both of you together, including each person's existing commitments
• The loan is usually one facility in both names, whatever the share split on the title says
• Each borrower's credit report carries the loan, and carries the repayment history
• A future refinance or sale generally needs both signatures, in either structure
• Unequal contributions are dealt with in a co-ownership agreement, not in the loan

Two loans rather than one is occasionally possible where the ownership is genuinely separate, and it depends entirely on the lender's policy and on your circumstances. It is a question worth asking before the application rather than after.

Which one do people usually choose

There is no rule, and anybody who gives you one has not asked enough questions. What follows is the pattern we see rather than advice about your situation.

1. 1

   Couples buying a first home together

   Commonly joint tenants, because they want the survivor to take the property without it going through the estate.

2. 2

   Second relationships with children from the first

   Commonly tenants in common, so each person's share can pass to their own children under their will.

3. 3

   Unequal contributions to the deposit

   Commonly tenants in common with shares that reflect what each person put in, and a written agreement alongside it.

4. 4

   Friends or siblings buying together

   Commonly tenants in common, because everybody wants a defined share and an exit that does not depend on the others.

5. 5

   Parents helping on the title

   Varies considerably, and it interacts with duty, tax and future eligibility, so it is one to get advice on rather than assume.

Notice how many of those are decided by what should happen years later rather than by anything about the purchase itself. That is the whole of the question.

Whose advice this actually is

We are mortgage brokers, not lawyers. Which ownership structure suits you is a legal and estate planning question, and it belongs with your conveyancer, your settlement agent or your solicitor.

It also touches things that are nobody's guess. Duty is assessed by RevenueWA, the tax treatment of an investment property follows the shares, and a co-ownership agreement is a document somebody has to draft.

What we can do is the lending half: what each of you can borrow, how the liability works, which lenders are comfortable with the structure you have chosen, and what a later change would mean for the loan.

If you are working out how much you could borrow together, How much can I borrow? covers what a lender counts and what it discounts. If you are buying your first place, Buying your first home in WA covers the wider process.