Ever wondered if you could own properties in multiple locations while shelling out only 25%-50% of the cost per purchase? What are the legal considerations while making such an investment? Let us examine.
What is joint ownership?
To buy a property with another person/entity is known as joint ownership. The two parties involved are known as ‘joint tenants’ or ‘tenants in common’ and the contribution size determines the percentage owned by each tenant.
One may be a joint owner with a friend, family member, business partner or a legal entity. There are different types of ‘co-ownership’, each offering a different structure and utilities to the parties.
See also: Types of joint ownership of property
1. Joint tenancy
Joint tenancy occurs when all the tenants (parties) acquire the property at the same time, acquire the title by the same deed/will and have the same right to possession. This means that all the parties share the same interests in the property. Every party receives identical rents and profits, yet neither of them holds a specific share in the property. A joint tenancy ends when the principle of survivorship applies, i.e., one owner outlives the other, transfers the whole property to another, or the property is sold to someone else. In addition, when, voluntarily or involuntarily, a ‘tenancy in common’ is applied, the joint tenancy ends.
2. Coparcenary
This form of joint ownership applies to a Hindu Undivided Family (HUF) structure. Coparcenary allows even an unborn child to have an equal share in a HUF property and at birth, a coparcener becomes a shareholder of the property jointly held by a HUF. Upon the death of a coparcener, his/her undivided share in the property is passed on to his/her heirs and not the other coparceners.
3. Tenancy in common
A tenancy in common is a form of co-ownership where the property is held in common with others. However, if a party dies, his/her share becomes part of the deceased tenant’s estate and is passed on to his/her beneficiaries as per the will/succession laws. Selling, gifting or mortgaging are also options. When all the shares are sold or all the parties convert to a beneficial joint tenancy, the tenancy in common ends. Tenancy in common is the most preferred form of joint possession.
4. Tenancy by entirety
This type of co-ownership happens between a husband and a wife who are treated as a single entity due to marriage. Both spouses possess and use all of the property. The death of one will lead to the other inheriting the whole property. Neither husband nor wife can sell any part of the property without the other’s consent.
Just like joint tenancy, tenancy by entirety occurs when the spouses acquire the property at the same time, acquire the title by the same deed/will and share the same interests in the property. Upon divorce or death of a spouse, a tenancy by entirety ends. Other factors like selling, gifting or expressing a common agreement to terminate such tenancy can also end a tenancy by the entirety.
Advantages of joint ownership of real estate
- The parties are entitled to the right to possession and use and disposal of the property, provided it is clearly stated in the deed.
- All can avail of income tax benefits (as the income can be split between owners under Section 54EC), representation, legal continuity and leverage. Multiple owners bring financial creditworthiness and hence, may be offered better loan terms to buy property. Thus, not only does one reduce the initial investment, one may be able to secure cheaper debt.
- A joint property owner is allowed to include his/her part of the property in a will. This is recommended, as it saves the successors considerable time and resources in the event of a dispute.
Also read: Joint registration of property benefits
Disadvantages of joint ownership in real estate
- Co-owners may differ in their thinking and plans for the property, causing disputes. This may lead to complications when owners want to go in different directions.
- The maintenance costs must be split between all the owners, even when one owner has no plans to use the property in future.
- If owners do not have a defined will and successor, a dispute might result in long court battles to claim ownership.
See also: All about taxation and TDS on sale of property in case of joint sellers
Co-ownership presents us with the opportunity to own and use multiple properties while reducing our investment size. However, doing a thorough analysis, based on your requirement, is important to choose the correct form of joint ownership.
(The writer is founding partner at Vis Legis Law Practice, Advocates)
