What is joint tenancy?Joint tenancy is a legal agreement between two or more parties on a piece of real estate, in which each party has an equal share of the property. Relatives, married couples, long-term partners and friends can all establish joint tenancies. Joint tenancies involve rights of survivorship. This means the ownership of the property passes straight to the surviving tenants upon the death of a deceased owner without going through the probate or court systems.Joint tenancy falls under the umbrella of joint ownership — when more than one person owns a share in a piece of real estate. In a second home, shares are usually divided by fractions or percentages based on the amount of money and/or sweat equity you invest in the home. The three main types of joint ownership are joint tenancy, tenancy in common and limited liability corporation (LLC). Most joint ownership agreements are drawn up by legal counsel to ensure all joint owners are on the same page.
Co-owned second homes
How does joint tenancy work?Any two people can form a joint tenancy; they don’t need to be married (though this is common). With joint tenancy, co-tenants have equal interest in property ownership, and each co-tenant has full access to the property. Tenants may occupy the property together or separately.
What are the rights of survivorship?Rights of survivorship exist within a joint tenancy agreement. This means that if one of the co-tenants dies, the other co-tenant will immediately become the sole owner of the property. The validity of a person's will is decided by probate courts, which also decide how to distribute the deceased person's assets among their beneficiaries, with the exception of real estate in a joint tenancy agreement.
What are ownership rights?Property ownership can look different depending on the legal conditions laid out in your agreement. Broadly speaking, ownership includes the rights to acquire, use and sell a property. Joint tenancy is by far the most common ownership structure, as many people who invest in properties tend to be either related or married and wish to pass down their property to their next heir.
Benefits of joint tenancyUnlike a timeshare or membership in a fractional vacation club, a joint tenancy arrangement gives you all the rights and privileges that come with real estate ownership.This includes but is not limited to earned equity in the home, the right to sell (as long as it’s in keeping with the joint tenancy agreement) and free use of the property according to your share.
AffordabilityThe cost of a home doesn’t end with the purchase price. Insurance, taxes, maintenance, utilities and HOA fees stack up, and having one or more joint owners to share costs can significantly lighten your financial load. Plus, rather than shouldering the full cost of a home, joint tenancy of property lets you cut that cost in half — or even more. This can greatly increase your buying power and help you get more home for less money.
ProtectionJoint tenancy lets you share the less-than-fun tasks of home ownership and maintenance with your co-owners. All co-tenants are responsible for property maintenance. So, if you’ve ever wished there were two of you so one of you could meet the plumber while the other is at work, joint tenancy of a property might be right for you.Plus, if the property is occupied regularly, it prevents maintenance issues that arise from neglect. Someone is more likely to be around to notice when there’s a leak or a crack, or a fallen branch that needs attention.
Easier legal processSurviving co-tenants don’t have to deal with probate, the drawn-out legal procedure the court system utilizes to validate wills due to the right of survivorship. Regardless of whether the decedent made a will, the surviving co-tenant(s) have instant access to their part of the property without having to go through probate.
ConvenienceJoint tenancy can also offer a consistent vacation experience. Rather than scrambling to find open dates in a rental with good reviews or stuffing yourself and your luggage into a questionable hotel room, joint tenancy in a second home gives you the freedom for last-minute trips and packing light.
Cons of joint tenancyThe strict regulations of joint tenancy can protect you if a co-tenant tries to profit from your investment, but those same conditions may make it difficult for you as well.
Co-tenant relationship challengesDifficulties may develop if the relationship between co-tenants alters. Co-tenants must agree on decisions regarding the property, and this can be increasingly difficult if disputes arise. Without the expressed consent of all co-tenants, nobody can sell their portion or the entirety of the property.For example, if a married couple shares joint tenancy of a property and decides to divorce, they will still be held accountable for paying all debt until the person who receives the full stake of the property refinances.
Increased responsibilityIf a co-tenant falls under financial hardship or loses employment, the other tenants must agree to continue keeping up with mortgage payments to avoid the property going into default.
Joint tenancy vs. tenancy in common
|Joint tenancy||Tenancy in common|
|Property deed||Co-tenants are added to the deed at the same time.||Co-tenants are added to the deed at various times.|
|Rights of survivorship||The title is passed to the surviving owner.||The title is passed to the individual’s estate.|
|Termination of tenancy||This occurs when a tenant sells or transfers interest to another tenant.||This occurs when a tenant buys out the other, the property is sold or a partition action is filed.|
- Property deed: In joint tenancy, the co-tenants are added to the deed at the same time. With tenancy in common, the co-tenants are added at various times.
- Rights of survivorship: In joint tenancy, the property title is passed to the surviving owner(s) in the case of death. With tenancy in common, ownership is passed to the individual’s estate. Joint tenancy has rights of survivorship whereas tenancy in common doesn’t.
- Termination of tenancy: A joint tenancy can be terminated if one of the parties sells or transfers their interest to another party, therefore changing the original arrangement. Terminating tenancy in common occurs when a co-tenant buys out another, the property is sold or a partition action (which allows a recipient to sell their share) is filed.
Joint tenancy FAQ
When do I need joint tenancy?
Joint tenancy is a good idea if you need to provide a partner access to the property after the death of the long-term partner, spouse, business colleague or beneficiary.
How do you create a joint tenancy?
Prospective tenants must state their joint tenancy on the title document or deed of the property they’re sharing. They must also state that they’re holding the property as joint tenants with right of survivorship while listing their names on the title.
These four requirements must also be met to create a joint tenancy:
- The co-tenants must purchase the property simultaneously.
- The property title must be the same for both co-tenants.
- The property must be divided equally among all owners.
- Each co-tenant must have equal rights for ownership of the entire property.
A joint tenancy can’t exist if the above requirements aren’t met — it will instead be treated as tenancy in common.
What happens when joint tenants separate?
Joint tenants must decide how to share their property when they separate. Both parties must agree on the terms of the share split before it can be completed. Each joint owner will have a different interest in the property once they decide on the conditions.
How does severing a joint tenancy work?
A joint tenancy can be severed by gifting a portion of the property to another tenant only if agreed upon by all parties. This can be done by filing a new deed with the local county recorder.
A joint tenant also has the option to simply transfer their stake to themselves, turning it into a tenancy in common. Be sure to perform careful research about the laws in your state before altering a tenancy.
What forms of property can be held in joint tenancy?
Most types of property — both tangible and intangible — can be held in joint tenancy. Different sorts of property ownership include investments, vehicles, bank accounts and real estate.
Should a married couple be joint tenants or tenants in common?
Although they’re similar, joint tenants and tenants in common have noticeable differences in what they can offer to couples. Tenancy in common can be valuable because it demonstrates the couple's joint ownership of the house while allowing them to decide who to leave it to after they pass away.
However, this does not ensure a seamless transfer of rights. Because the property immediately passes to the surviving spouse upon the death of an owner, joint tenancy is typically a better strategy for married couples.
What are the mortgage requirements for joint tenancy?
Those interested in joint tenancy must typically have a credit score of at least 620 and a debt-to-income (DTI) ratio below 50% to qualify for a loan. Joint tenants must pool together their income in the application to improve their chances of approval.
Co-tenants typically find it easier than individual people to meet DTI standards and may be granted a lower interest rate if each individual has a healthy credit score.