Ownership of Real Estate by Two or More People - Tenancy in Common and Joint Tenancy
Concurrent Tenancies: Tenancy in Common and Joint Tenancy
Why Do Tenancies Matter?
It is extremely important to know what your rights are as an owner of real estate, especially if property you own is co-owned with others. The manner in which the title to real estate is vested is in many cases arguably more important than the ownership itself. All owners of real property should be aware not only of their rights, but also the responsibilities, limitations, and liabilities that come with ownership. The need to be aware of these issues increases as the type of interest one holds in real estate becomes more complex - as when property is owned simultaneously by more than one person. This discussion begins with a quick refresher on the subject of tenancies before going into more detail about the two main ways that legal interest in non-marital property can be held by more than one person: tenancy in common and joint tenancy.
What Is a Tenancy?
The terms "tenancy" or "tenancies" refer to the different ways of holding or taking title to real estate. In some cases, the terms tenancy or tenancies refer to the type of interest in real property held by one who leases that property, as in "tenancy for years" (see Issue 20). In others, "tenancies" refers to ownership of real property vested in one or more persons. Real property may be owned by one person, known as tenancy in severalty (see Issue 32), or it may be simultaneously owned by more than one person, which is called a concurrent tenancy. The primary types of concurrent tenancies are joint tenancy, tenancy in common, community property, and tenancy by the entirety. Of these, only the first two exist in all states in the U.S; the latter two have to do with the way ownership is vested in marital property. This article will focus on joint tenancy and tenancy in common, with tenancies reserved for married couples to be featured in a future article.
Tenancy in Common
A tenancy in common may be held by any two or more parties, although married couples generally do not own marital property in this way. Parties to a tenancy in common are known as concurrent owners, co-owners, or tenants in common. In this form of real property ownership, co-owners hold a separate undivided fractional interest, which does not have to be equally distributed among all parties. Tenants in common may own any fractional interest, such as one-third, one-half, or even a 99% interest. This fraction refers only to the portion of legal interest owned by a tenant in common, not to a fractional ownership of the physical property itself. The term "undivided" means that the co-owned real property is not itself physically divided among the tenants in common. All parties to a tenancy in common have an equal right to possess the entire property, a legal concept known as "unity of possession".
Creation of a Tenancy in Common
A tenancy in common is created by a deed or other document that conveys title to real property to all concurrent owners. The document may state that a tenancy in common is being created, or it may simply list the names of those to whom the property is being conveyed. If the type of tenancy is not explicitly stated on the deed to property that is being conveyed to more than one person, it is generally presumed to be a tenancy in common. One exception is title to real property acquired by a married couple - if no tenancy is specified, then the type of ownership depends on state law. Some states assume the property to be community property, while others assume a tenancy by the entirety or joint tenancy. When creating a tenancy in common, it is not necessary to state on the deed the fraction of property interest owned by each party. However, if no fractional interest is specified, it is usually assumed that each tenant in common holds an equal interest (four tenants in common = 25% each, 10 tenants in common = 10% each, and so on).
Termination of a Tenancy in Common
The fractional ownership interest held by a tenant in common is considered sole and separate property and may be freely conveyed with or without the permission of the co-owners. Like any such interest, it may be sold, given away, or willed to another. A tenant in common can only transfer the interest he holds, not ownership of the entire piece of real property.
Joint tenancy may be held by any two or more parties, including married couples. These parties are known as co-owners or joint tenants. Like a tenancy in common, the interest held by each joint tenant is undivided. However, joint tenants own equal rather than fractional shares of the tenancy. Joint tenancies usually include the right of survivorship (ROS), which means that upon the death of one concurrent owner, the interest held by that party passes to the remaining co-owners. This passage of legal interest is automatic, and is unaffected by the contents of a will or the existence of heirs. When all other joint tenants are deceased, the last surviving co-owner takes title in severalty, meaning that she is now the sole owner of the property. At this point, the sole owner, like any owner of property in severalty, has the right to will the property to her heirs or to dispose of it in any other legal way.
Creation of a Joint Tenancy
Historically, a joint tenancy always included the right of survivorship. However, some states now recognize this right only if it is expressly stated in the deed or other document used to create the joint tenancy. The deed or other document must also contain phrases identifying the joint tenancy and joint tenants as such; this type of mutual ownership cannot be implied. If the deed does not state that a joint tenancy is being created and who the joint tenants are, then the joint tenancy does not legally exist. Since the intent to create a joint tenancy must be explicitly stated, it follows that this form of ownership cannot be created automatically by operation of law, such as a court order, judgment, or intestate succession.
The "Four Unities"
A distinguishing characteristic of a joint tenancy is that in order for it to be legally created, the "Four Unities" must exist. These requirements describe the legal concept of simultaneously uniting the interests of all co-owners into a single tenancy. The first unity is "Time" - all joint tenants must acquire title at the same time. The second unity is "Title" - all joint tenants must acquire title by the same document, and the document must list all joint tenants' names. The third unity is "Interest" - all joint tenants hold an equal, undivided interest in the property. The fourth unity is "Possession" - all joint tenants have an equal and undivided right to possess and use the property. All four unities are satisfied if the joint tenancy is created by a single document (or group of documents) conveying equal interest and undivided possession to all joint tenants, and this document or group of documents is signed and delivered at one time.
Termination of a Joint Tenancy
A person who owns real property as a joint tenant has the right to convey that property to another. However, such an act violates the unities of joint tenancy, specifically those of time and title. Therefore, the new owner cannot be a joint tenant; he holds his interest as a tenant in common with the remaining co-owners. For example, Bob holds interest in a rental home as joint tenants with Amy and Sally. Bob sells his interest to Steve. Steve now owns a one-third share in the property as a tenant in common with Amy and Sally, who remain joint tenants with each other, with each owning an undivided share of the remaining two-thirds interest in the home. If Bob sold only half his interest to Steve instead of the whole thing, the ownership interests would be distributed thusly: Steve would own a one-sixth share as tenants in common with Bob, Amy, and Sally, who would own the remaining five-sixths interest in the property as joint tenants with each other. In either example, Steve's interest as a tenant in common may be conveyed to another party, who would also be a tenant in common with the remaining owners.
If a party to a joint tenancy wishes to terminate her interest in the property, but the other parties do not agree, then a court of law must determine how to equitably split the property between co-owners, usually through an action known as a "partition suit". The court will generally try to physically partition or divide the property, giving each co-owner an equal portion. Many times, however, this is not possible without diminishing or destroying the property's value. In such cases, the court can order the property sold, with the proceeds evenly distributed among the joint tenants.
Summing It Up
Both tenancies in common and joint tenancies are forms of real estate ownership by more than one person. To create a joint tenancy, the intent to do so must be explicitly stated, and the four unities must exist. This is not necessary for a tenancy in common to be created; in fact, failure to specify the type of concurrent ownership on a deed generally results in a presumed tenancy in common. Possession is the only unity necessary for a tenancy in common.
Tenants in common hold an undivided fractional interest in the co-owned property, while the interest held by joint tenants is undivided and equal. Shares in a tenancy in common may be freely conveyed without changing the relationship among tenants. Such an act effectively terminates the original tenancy in common and creates another. In contrast, the recipient of a share of a joint tenancy becomes a tenant in common with the remaining co-owners, because the four unities of the original joint tenancy no longer exist. If a joint tenant wishes to terminate the tenancy but the other parties do not agree, a partition suit may be necessary to equitably split the property or the proceeds from its sale.
A joint tenancy is much different than a tenancy in common and both can be quite complicated, in part because they involve combining one interest in real property with the interests of others. Consultation with an attorney to create co-ownership of real property is always advised. Doing so is a proactive step toward protecting your rights, as well as ensuring that you understand the nature of the obligations, liabilities, and relationships inherent in a concurrent tenancy.
Added: Wed Sep 17 2008