The difference between joint tenancy and tenants in common is very important for partners buying real estate to learn, and therefore for its Realtors to learn. These two terms are similar, but very different ways that two or more parties can buy property together. Today we’re going to talk about the difference, and the benefits of both.
Tenants in Common
The most common kind of co-ownership is tenants in common, and this is in fact the default in our home state of Arkansas. Hypothetically, if party A and party B want to purchase a property together to utilize as a rental property, both A and B own rights to the property as tenants in common. This has a lot of legal implications to their partnership, should they sell the property, or should either party pass away.
If either party is married, their spouse has marital rights to the property through their dower, or courtesy rights. Meaning, if both A and B intend to sell the property, and party A has a spouse, that spouse has to be present to sign away their marital rights to the property when A and B sign. Have you ever heard the saying “it takes one to buy, two to sell”? This is where that saying comes into play.
Equally important are the inheritance rights of the property, and how that co-ownership looks after one party passes away. With tenants in common, inheritance can be specified with a will, and left to the party’s spouse, children, or whoever inherits through the will. For example, if party A passes away and leaves their half of the property to their spouse, then that spouse and party B now co-own the property together.
The long name for joint tenancy is joint tenants with right of survivorship, and it means precisely how it sounds: both parties co-own the property, and if one passes away, the remaining party “inherits” their partner’s half, that is the right of survivorship. Meaning, with joint tenants, buyers leave their share of the real estate with the other tenant, instead of with the next in line. The surviving party becomes sole owner of the property automatically, without need for probate.
Joint tenancy is common when two or more people want to buy property as part of a business transaction and/or a partnership, and don’t want to involve spouses, kids, etc. Marital rights don’t attach to joint tenancy, and you cannot leave a property with joint tenants in a will. It’s a good way to keep the partnership strictly business.
Issues and Advice
As mentioned earlier, under Arkansas law, tenants in common is the default mode when co-ownership comes into play. If buyers want to become joint tenants, that has to be spelled out as “joint tenancy with right of survivorship” in the deed. Under Arkansas law, this has to be prepared by or under the supervision of an attorney. The law also restricts how Realtors can/can’t give legal advice. Our recommendation to Realtors? If a client knows enough about joint tenancy and tenants in common to be dangerous, recommend an attorney for legal advice.