Small Business Questions & Answers


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Ask About Co-Ownership - Part 2

by Tentative Tenant | May 25, 2012

Subject :Business Law

Dear Toolkit,

Can you explain the differences between owning something in joint tenancy and in tenancy by the entirety? And what other ways of owning property are there, if any?

Tentative Tenant

Dear Tentative,

To continue our short course on the various forms co-ownership can take, let's tackle the often misunderstood "Tenancy in Common."

Tenancy in common is an old English common law concept which is generally applied any time two or more persons, who are not husband and wife, are entitled to the possession and use of the same property. The owners may own unequal interests (shares) and may have received their interests at different times and through different means (grant, deed, inheritance, will, etc.). The important distinction between tenancy in common and other types of co-ownership is that, upon death, each owner's interest passes to his heirs or those named in his will. There is no right of survivorship which transfers the decedent's interest to the other co-owners.

Survivorship rights. This right to specify who shall receive your property at your death is considered so important that, under the law, tenancy in common is preferred over other forms of co-ownership. That is, if property is transferred to two or more persons and nothing is said about how the property is to be held, it is generally assumed to be held as tenancy in common.

Ownership rights. Each common owner may enter on the common property, take possession of the whole, occupy and utilize every portion of the property at all times and in all circumstances. The rights to use and possession, however, are not exclusive, and each common owner has the same rights. If income is derived from the property, each co-owner is entitled to his proportionate share of the income.

Ownership responsibilities. Each co-owner is also responsible for his proportionate share of expenses, taxes, and repairs. If the expenses are paid by one co-owner, the other co-owners must reimburse him for their share, or their duty to reimburse may be enforced by a lien against their interest in the property. If one co-owner pays for improvements to the property, the other co-owners must reimburse only for the lesser of the cost of the improvements or the increase in value of the common property.

Here's an example: Adam adds a garage onto a home that is held in equal shares by Adam, Bill, and Chuck. The cost of the garage is $15,000, but it increases the value of the property by only $9,000. Adam can recover only $3,000 from each of the other co-owners, Bill and Chuck.

Conveyance. Each co-owner has the right to transfer or convey his interest in the property (but not the property itself) by selling it, giving it away, or transferring it to persons of his choice at death, without the consent of the other co-owners. In addition, the debts of each common owner will bind his interest in the property, but will not affect the common property or the shares held by the other co-owners.

Partition. If tenants in common wish to terminate their joint ownership of the property they may voluntarily, by agreement, divide the property into separate ownerships or any of the co-owners may file a court action for partition. The court may either divide the property into parcels according to each owner's share, or it may sell the property and apportion the proceeds among the co-owners.

For example, assume Sally dies owning a tract of land improved with a single-family dwelling and leaving no spouse and having no will. She does leave a daughter Betty, and two grandchildren, Dick and Jane, who are the children of a deceased son. Betty inherits one-half interest and Dick and Jane each inherit one-fourth interest in the property. Betty files a partition suit against Dick and Jane. The court determines that the property cannot be divided among the three tenants in common, so it orders the property sold at public auction. The proceeds from the sale are $60,000. Betty receives $30,000 and Dick and Jane each receive $15,000.