Whether for personal, business, or investment reasons, many people desire to purchase property with another person or partner. A joint purchase is particularly desirable where sharing the financial burdens associated with property ownership allows the parties to purchase a property that would otherwise have been out of their financial reach. It can also serve as a valuable estate planning tool or as a means to invest in either long-term or short-term rentals.
Before deciding to purchase property with someone else, however, it is important to understand the different types of property ownership available. Three main methods of co-ownership are available under the law: tenancy in common, joint tenancy, and tenancy by the entirety.
Tenancy In Common
Tenancy in common is the type of co-ownership of property most commonly understood when land is owned with a non-spouse. Tenants in common own an undivided interest in property, meaning they own a percentage of the entire property. For example, a tenant in common holding a 50% ownership in a house does not own the right half of the house, but rather 50% of the entire house. At death, a tenant in common passes his or her interest in the property to heirs in the same way other property is passed along, whether through the instructions of a will or according to the intestate statute.
Joint tenancy is a unique type of property ownership. Unlike tenancy in common, joint tenants automatically inherit another joint tenant’s interest in the property at death, so that the interest of the other tenants swell to include the interest of the deceased tenant. For example, if three people own property and one dies, the other two tenants each become 50% owners of the property, regardless of any instructions the deceased tenant may have left in his or her will.
There are four distinct marks of joint tenancy. These are known as the “four unities” and include:
- The unity of interest: the tenants have like interests in the property, meaning they all have undivided shares in the property that is jointly held.
- The unity of title: the interests of the tenants are derived from the same event. This means that the tenants acquired the property through the same transaction, inheritance, or other method of acquisition. They acquired the property together.
- The unity of time: the interests of the tenants vest at the same time meaning that they acquired ownership at the same point in time. One tenant cannot acquire ownership of the property after another tenant.
- The unity of possession: each tenant has complete ownership of the property and not simply a portion thereof. Each tenant individually has the right to possess the whole property.
The modern presumption is that unless an intent to create a joint tenancy is clearly evident, such as through a conveyance that explicitly states “as joint tenants and not as tenants in common with a right of survivorship,” a conveyance of land by deed or will to two or more persons will generally be construed as creating a tenancy in common.
Furthermore, if a joint tenant disposes of his or her interest, the joint tenancy will be broken and a tenancy in common will be created. Therefore, if a joint tenant sells his or her interest to a third party, the purchaser will become a tenant in common. If there are more than two joint tenants, however, the remaining joint tenants will remain joint tenants with regard to one another’s interest, while becoming tenants in common with the new cotenant. To maintain joint tenancy, all joint tenants must be involved with the transaction with the manifest intent to maintain joint tenancy. This generally requires that the joint tenants convey the property in one instrument to the remaining cotenants and the new cotenant together.
Both tenants in common and joint tenants have the right to partition, which means they can demand that the land be divided between them, so that they have absolute and sole ownership of a portion of the property. If an arrangement cannot be worked out among the cotenants on their own accord, this will generally require a cotenant to petition the court to divide the property. If a property cannot be fairly or evenly divided, such as is often the case where a residence is involved, then the property may be sold and the proceeds divided. The right to partition is generally an absolute right, so there is usually no way for the other cotenants to stop the action—though this right can be limited by contractual agreements among the cotenants.
Tenancy By The Entirety
Tenancy by the entirety is a special type of joint tenancy for married couples. It stems from the common law view that husband and wife are one entity. Tenancy by the entirety requires the four unities of joint tenancy described above, plus the additional unity of marriage. Similar to joint tenancy, tenancy by the entirety includes the right of survivorship. Unlike joint tenancy, however, tenants by the entirety generally lack the right to sever the tenancy unilaterally, as husband and wife are considered one person. Therefore, terminating a tenancy by the entirety requires the consent of both parties. Consequently, tenants by the entirety do not enjoy the absolute right to partition held by other cotenants.
Many states have abolished tenancy by the entirety, but Arkansas continues to maintain it. Thus, if you have bought a house with your spouse in Arkansas, you probably own it as a tenant by the entirety.