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PROPERTY 101: What’s The Difference Between Joint Tenancy vs Tenancy-in-Common
Many Singaporeans will likely purchase a property jointly with someone else in their lifetimes. They may do so for a number of reasons. The obvious one is that financially, the property required two people to pool their resources together to purchase it. Becoming property owners of the familial dwelling with a spouse is also a common gesture that symbolically represents the marriage. It could also be a strategic move made with an eye towards owning a second property later in the future. Whatever the reason, a decision must be made at the point of purchase regarding which option of co-ownership to take up. This decision is mandatory as it has to be reported to the Singapore Land Authority. These options are joint tenancy and tenancy-in-common. There are potentially significant consequences attached to this decision, not least in determining how the property will be inherited or how ownership of the property can be transferred. What Are The Key Differences? Joint Tenancy In a joint tenancy, the co-owners, in holding the whole interest of the property, are considered a single entity regardless of how much each owner has contributed to the purchase. There are no separate shares. In other words, everybody owns the property equally together rather than each owning a specific percentage of the property. This has several ramifications. Firstly, this manner of holding means that decisions regarding the property requires consent from all owners. A co-owner cannot unilaterally choose to sell the property, or transfer ownership of it to another person. In addition, if one of the co-owners pass away, ownership of the property will automatically transfer to the surviving co-owners. This is known as the right of survivorship and it supersedes the deceased joint owner’s wishes, no matter whether he wishes to or even if he left behind a will stating otherwise. Since all joint owners are considered a single entity, there is no estate duty incurred when ownership passes to the remaining owners. Finally, a joint tenancy also makes it much more difficult to “de-couple”. De-coupling refers to a spouse giving up co-ownership of a property and relegating his status to that of an “authorised occupier”. More on this later. Joint tenancy is the default option for most owners of a family home. A couple jointly owning a home is usually deemed to be much more fitting as a representation of their marriage. It also makes things much easier administratively should one spouse pass away; the other spouse automatically inherits the property. This can backfire, however, in the unfortunate event that a marriage has gone awry. A joint owner who has financially contributed more towards the property than the other must still acknowledge that both spouses have equal ownership of the property, and that can give rise to tensions and legal complications. Tenancy-in-common Tenancy-in-common makes a much clearer distinction between the co-owners. Shares of the property are divided clearly among the co-owners, so that they each hold separate and defined shares. This allows a co-owner to freely sell his share of the property without needing to seek the consent of the other owners. Should the sale be successful, the buyer will become the new co-owner and there is nothing the original co-owners can do to oppose it. It also means that the right of survivorship does not apply in a tenancy-in-common. Should a co-owner pass away, his share of the property forms part of his estate and will be distributed according to his will. Should he die without leaving a valid will behind, it will be distributed according to Singapore’s laws on intestate succession (or, if the deceased is Muslim, Syariah law). Estate duty will be liable. It is important to note that co-ownership of a property is not the same as that of a company; one who owns the largest share of the property does not get a controlling stake in it. He may only unilaterally make decisions pertaining to his share, but all other decisions concerning the whole property, such as rent or renovation works, must still require the approval of all co-owners. Furthermore, all co-owners have a right to live in the property and cannot be forced out of the house by another co-owner, regardless of the proportion of shares held. Unsurprisingly, tenancy-in-common tends to be the arrangement set between owners who hold a commercial interest in the property rather than personal. There is, however, a major reason why some couples may also choose to take up tenancy-in-common for their property. Additional Buyers Stamp Duty (ABSD) Singapore citizens have to pay additional buyers stamp duty for the second property (and subsequent ones after) they purchase. The exact amount liable varies depending on certain factors, such as the number of properties one already owns, but it is almost certainly going to be a substantial amount. As such, a couple may enter into a tenancy-in-common for their first home such that one spouse can then easily transfer his or her share to the other spouse, thereby no longer owning any properties and being free once more to purchase another property without incurring ABSD. This transference of shares – the aforementioned de-coupling – is obviously much more direct through a tenancy-in-common since that is exactly what this form of ownership is meant to facilitate. But there are some significant caveats. For one, although additional buyers stamp duty is not incurred, transferring the shares of a property to another will still cause buyers stamp duty to be payable. Astute couples can get around this by assigning 99 per cent ownership to one spouse and one per cent ownership to the other when they first purchase the property. This way, when the latter transfers their share to the former, the buyer’s stamp duty will be calculated only based on the one per cent share, making the amount the least it can be. This obviously requires a lot of forward planning, and arguably holds even more legal risks than a joint tenancy should the marriage devolve into a less-than-amicable divorce. The other caution is that this particular tactic can only be applied to private properties; HDB flats cannot be de-coupled no matter which manner of ownership has been taken up unless there are exceptional circumstances, such as divorce or the renunciation of citizenship by one party, or extreme financial hardship. If such things have happened, the purchase of a second property is surely no longer on the couple’s mind. Switching from joint tenancy to tenancy-in-common (or vice versa) Switching from one form of ownership to another is possible. But it is not likely to be financially compelling to do so for the purposes of avoiding ABSD on a second property – if you failed to set this plan out in motion when you purchased your first property then that ship has almost certainly sailed. For a start, the services of a conveyance lawyer will need to be sought. In addition, converting a joint tenancy to a tenancy-in-common or vice versa requires both parties to own 50 per cent of the property at the beginning or the end of the conversion, respectively. This means that for a tenancy-in-common to become a joint tenancy, a transfer of shares between the spouses may be required such that the ownership becomes 50-50. This transference will then incur buyers stamp duty. Meanwhile, a joint tenancy can only convert to a tenancy-in-common with both parties owning 50 per cent shares – rather than the 99 to 1 per cent arrangement. If there is a mortgage on the property, the lending bank must also give permission before this conversion can happen. The bank reserves the right not to give consent, in which case the conversion can only happen after the outstanding loan amount is paid off. No impact on mortgage
Finally, it should be noted that if a mortgage has been taken out to finance the purchase of the property, all co-owners are jointly liable for the mortgage payment regardless of whether they are tenants in common or joint tenants.
Read also: INVESTING 101: Does Investing In Your Own Co-Living Space Live Up To The Hype?
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