Co-ownership of property: Joint Tenants or Tenants in Common?

If you purchase property in NSW with two or more people, you need to consider how you will own the property together and in what proportions. The two options when purchasing property with others are to purchase as either joint tenants or tenants in common.

Joint tenants

If a joint tenant of a property dies, ownership of the property automatically passes to the survivor(s). The interest of the deceased in the property would not be dealt with under the terms of their Will.

Tenants in common

If the owners of the property are tenants in common, they each own a share in the property. Each owner’s share can be whatever proportion the owners have agreed.

If an owner dies, their share of the property would be dealt with under their Will or (if there is no will) under the rules of intestacy: it would not pass automatically to the other owners of the property.

Why choose joint tenants?

Purchasing as joint tenants is the most common option for married couples or couples in a de-facto relationship.

Transferring the interest of a joint tenant in a property to the surviving joint tenant(s) is a lot less costly and much faster than transferring the interest in the property under a Will. If a joint tenant dies, a Notice of Death is must be registered with NSW Land Registry Services to transfer the deceased’s share of the property to the survivor(s). Unlike a tenancy in common, a grant of probate is not required.

Why choose tenants in common?

Purchasing as tenants in common may be appropriate in circumstances such as where one of more of the owners:

  1. want to gift their interest in the property in a particular way in the event of their passing. For example, where the owners are a blended family (i.e. the couple have children from previous relationships);
  2. does not want the whole of the property passing to the other owners if they die. For example, where the owners are friends, a new couple, siblings, parents and children, extended family members, etc.;
  3. wish to record ownership of the property in different proportions. For example, if one owner contributes more of the purchase price than the other owner(s), the parties may wish to record this in the ownership proportions noted on title.

When do I need to decide?

You should decide before exchanging contracts for the purchase as the type of ownership is recorded in the contract for sale. There can also be transfer duty implications if the proportions noted on title are changed between exchange of contracts and settlement.

Can I change the type of ownership after completion?

It is possible to change between tenants in common in equal shares (.i.e. 50/50) and joint tenants after purchasing, by registering on title either:

  1. a Transfer Severing Joint Tenancy, to change from joint tenants to tenants in common in equal shares; or
  2. a Transfer Altering Tenancy, to change from either:-
    1. tenants in common in equal shares to joint tenants; or
    1. joint tenants to tenants in common in equal shares.

If there is a mortgage on the title, the mortgagee would need to formally consent to the registration of a Transfer Altering Tenancy.

Transfers that change the ownership proportions will attract transfer duty, calculated on the market value of the proportion being transferred.

What now?

Whenever purchasing a property with other persons, taking the time to work out how you will be purchasing together, and the impact that it has on your will and estate plan, can save you time and money later.

Contact us for advice on the pros and cons of each option.

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Buying a property in NSW – Cooling Off Rights

Once you have obtained your finance and found a suitable house, you can make an offer to purchase the property. There is usually some haggling before you and the vendor agree on a price.

You must then sign a contract of sale which includes details about that property and the terms and conditions associated with the purchase.

From the point where an offer to purchase has been accepted, one of two things can happen, either:

(a) contracts are exchanged with the real estate agent on the day that your offer is accepted (or soon thereafter). This is an exchange of contracts with a cooling-off period; or

(b) the agent will send a sales advice to your solicitor. In this scenario no contracts are signed or exchanged with the real estate agent.

What is an Exchange of Contracts?

A property is considered sold when contracts are exchanged and the deposit paid (normally 10% of the purchase price). The exchange of contracts takes place when two identical contracts are signed by each of the purchaser and the vendor and are then dated. The purchaser retains the version of the contracts signed by the vendor and vice versa.

When the contracts are exchanged, a contractual relationship comes into effect. Up to that point, the agreement is not legally binding on the purchaser or the vendor and either can change their mind about buying or selling the property.

What is a Cooling Off Period?

Conveyancing legislation in NSW provides that every purchaser of a residential property is entitled to a 5 business day cooling off period. Section 66Q of the Conveyancing Act 1919 defines residential property as:

“(a) land on which are situated (or in the course of construction) not more than two places of residence, and no other improvements, or

(b) vacant land on which the construction of a single place of residence alone is not prohibited by law, or

(c) a lot or lots (including a proposed lot or lots) under the Strata Schemes Development Act 2015, comprising not more than one place of residence alone, whether constructed or in the course of construction, and including any place used or designed for use for a purpose ancillary to the place of residence”.

Vendors often insist on receiving a section 66W certificate at the time of exchange. That means the purchaser waives their right to a cooling off period and cannot back out of the contract without forfeiting the 10% deposit.

If a property was purchased at auction or on the same day as an auction after the property was passed in, the purchaser has no cooling off rights.

The cooling-off period may be reduced or extended by written agreement with the vendor. It is critical to provide the vendor with a written request If you wish to extend, and ensure you have a reply in writing before 5pm on the fifth business day after the exchange date. If you do not have the vendor’s written reply agreeing to an extension before 5pm on the fifth business day, the cooling off period will be deemed to have expired at that time and you will be bound to the terms of the contract.

If the purchaser decides not to proceed, they must provide the vendor with written notice of their decision during the cooling off period. In that case, the purchaser will have to forfeit 0.25% of the purchase price to the vendor but they are entitled to have the balance of the 10% deposit paid on exchange returned to them.

As a purchaser, why should I make a cooling off period a condition of my offer?

It is in the purchaser’s best interests to have a cooling off period at exchange of contracts for the following reasons:

  1. The property comes off the market upon the exchange. Even if another prospective purchaser offers more money to the vendor, the vendor is unable to accept that offer;
  2. The purchaser has extra time to secure finance for the purchase without competition from other purchasers. If the purchaser has conditional approval before exchange, the bank/incoming mortgagee should be able to issue unconditional loan approval during the colling off period;
  3. The purchaser has 5 business days to consider any pest, building or strata inspection reports they order without fear of another purchaser securing the property. If a problem is uncovered, the purchaser can get out of the contract, forfeiting only 0.25% of the purchase price;
  4. A cooling off period allows a purchaser to secure a property risking only 0.25% of the purchase price; and
  5. If the bank does not issue unconditional loan approval during the cooling off period, the vendor may allow at least a small extension to the cooling off period to allow the purchaser a little more time to deal with the bank. However, a vendor can deny the request for an extension, which forces the purchaser to decide whether to proceed with the purchase without final approval of the loan.

Best practice is for a prospective purchaser to obtain a pre-approval from the incoming mortgagee before even starting to inspect properties.

What now?

Once you find a property, contact us to guide you through the negotiation of contract terms and the exchange of contracts.

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