Unlock ownership matters

The contract arrives. The property purchase is, not unusually, being made by two people with the same surname. But there's no instruction about how they'll share ownership - whether as ''joint tenants'' or as ''tenants in common''.

There are crucial legal differences between the two structures, which have long-term financial ramifications.

''Many a lawyer would have presumed they were husband and wife and have written up the documents as joint tenants,'' the solicitor involved at the time says.

As it turns out, they were brother and sister.

What would have happened if he hadn't made inquiries and discovered they were siblings?

Imagine that, 10 years later, the young woman marries, has a family but then dies suddenly.

As joint tenant, the brother would become full owner of the property, regardless of the existence of his sister's young family and what she might have wanted for them.

Had they been tenants in common, the sister could have made provision in her will for her young family to benefit from her half of the house.

''The really important thing when you buy property is thinking about what's the legal consequence that you'd want [from the ownership structure],'' a senior lecturer in the University of NSW's faculty of law, Cathy Sherry, says.

JOINT TENANCY

Joint tenancy is the most common form of ownership because most people own property with their spouse, she says.

A key difference from tenancy in common is that joint tenancy comes with the ''right of survivorship''.

That means when one of the joint tenants dies, the other ''absorbs'' their share, Sherry says.

''If your husband dies, you don't inherit his share; his share just disappears and yours gets correspondingly bigger. That's important, because it doesn't become part of the estate for the administration of the will.''

One result is that, as a general rule, the deceased's share of the property won't be sold to pay off debts.

TENANTS IN COMMON

With tenants in common, there's no right of survivorship and his share would go to whomever he names in his will. If that's the children, you would end up owning your home in partnership with the children.

If he divides his assets between you and your child, you would keep your existing half as a tenant in common and pick up another quarter, with the child owning the other quarter of the house.

''If you're talking a garden-variety first marriage, joint tenancy would be what you want,'' Sherry says. ''If you're talking about a second marriage, or you're not in a relationship at all but are just friends, that's different.''

Take a scenario in which there's a new partner, along with children from a first marriage.

''If you buy property as joint tenants with your new partner, you're just assuming they're going to look after your kids [financially] - and that may or may not be the case,'' Sherry says.

If you buy as tenants in common and you name your children as beneficiaries of your estate, your new partner will

co-own the house with your children.

That has risks, too, however. If the children are adults and want the money that's tied up in the house, as co-owners they could force a sale.

OTHER DIFFERENCES

Another difference between joint tenancy and tenants in common is that joint tenants always have equal shares, while one tenant in common can have a bigger share than the other (or others).

The bottom line is that if there are any complications, you need to obtain advice about the best structure for your situation, Sherry says.

''When buying a property, you should always be advised by a solicitor or licensed conveyancer. If there's anything complicated, make sure a lawyer is involved.''

If you are reading this and thinking you might be in the wrong ownership structure, Sherry says you can change from joint tenancy to tenancy in common.

''If you don't want the right of survivorship, you can sever a joint tenancy,'' she says. ''It's relatively straightforward to do. The other joint tenant generally has no ability to prevent you doing so.''

But you must do it in your lifetime, because such a change can't be made by your will after you die.

Community title - what you are up for

The adage of ''buyer beware'' is especially important with community title, law lecturer Cathy Sherry says.

This form of title - essentially the same legal structure as strata title - is associated with some, though not all, ''master-planned'' housing developments.

''If you're buying community title you must understand what you're buying,'' Sherry says.

With strata title you part-own property, such as the lifts and common areas, but with community title that part-ownership can extend to parks, tennis courts, a country club or marina, not to mention possibly the sewerage system and the roads.

There will also be by-laws that prohibit some things and prescribe others. You might have to mow your lawns every fortnight and have only white window coverings, for instance.

In the by-laws of one community viewed by Sherry, children were restricted from being in the park unless accompanied by a resident aged 21 or above, so the older kids couldn't take the younger ones out to play.

''If you walk around one of these places and say, 'Isn't it beautiful?' you need to ask yourself why is it beautiful and who pays to keep it looking like that,'' Sherry says. ''You own it, and you have to pay for it.''

Developers and real estate agents argue such by-laws maintain standards and increase property values in these developments. Sherry says that's true sometimes, but not always.

In the US, where such communities have a longer history, properties are now being advertised as having ''No home owners' association'', she says.

''Not having rules and extensive facilities, particularly post-GFC, is distinctly attractive to many buyers.''

The story Unlock ownership matters first appeared on The Sydney Morning Herald.

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