Joint Tenancy Vs Tenancy In Common: Pros Cons
When you acquire a residential or commercial property with several people, you will be asked to choose the ownership alternative. There are two popular kinds of residential or commercial property ownership in Singapore - joint occupancy and tenancy in typical.
This short article discusses both residential or commercial property ownership enters Singapore and their pros and cons. It likewise highlights the differences between the two types of joint ownership. It will allow homebuyers to make a notified choice on the manner of holding when buying a residential or commercial property with a co-owner. Furthermore, we will also go over how you can change the ownership type.
So, let's begin with a fast introduction of the ownership types with their benefits and drawbacks.
What is joint occupancy?
Joint occupancy is a type of ownership in which all co-owners of the residential or commercial property will have an equivalent stake in the residential or commercial property. For example, if you and your wife own a residential or commercial property together, you both will have a 50% share of the residential or commercial property. Similarly, if you co-own a residential or commercial property with 3 other co-owners, each will own a 25% share.
In joint occupancy, you or other co-owner(s) are considered a single legal entity. All co-owners will have equal interest and rights, regardless of how much one owner contributes to the residential or commercial property's purchase cost. So, one owner can't kick out the other co-owners in any scenario.
Under this kind of ownership, the residential or commercial property might only be sold or mortgaged as one unit. Therefore, neither you nor other co-owners can make a unilateral decision on issues like offering off or mortgaging the residential or commercial property.
Joint tenancy is an appealing option for married couples or other relative who wish to own residential or commercial property together. Note that it is the 'default' holding choice on the agreement when a couple purchases their home.
Let's comprehend it much better with an example.
Suppose there are 3 adult siblings and a $2 million residential or commercial property concurred upon joint occupancy among the parents and the oldest kid at the time of purchase. After their parents' death, the residential or commercial property is automatically moved to the oldest son considering that he is the only survivor of the co-owners. Even if the moms and dads' will states otherwise, it becomes irrelevant here.
Pros of joint occupancy
The right of survivorship. It is among the most considerable advantages of joint tenancy. If the occasion one co-owner passes away, his/her share of the residential or commercial property instantly passes to the enduring owner(s), no matter whether there is a will or not.
It also assists avoid the hold-ups and expenses connected with probate. So, if you and your wife hold residential or commercial property together under a joint occupancy, she will automatically get the flat's ownership after your death.
Simple and simple. This ownership structure is easy to understand, and the right of survivorship eliminates the need for complicated legal plans or estate planning.
Protection from creditors. In joint occupancy, each owner's share is secured from their individual creditors. It suggests that if one co-owner sustains a financial obligation, their financial institutions can not seize the co-owner(s) share of the residential or commercial property.
Cons of joint occupancy
Lack of control. Under joint tenancy, all co-owners own the residential or commercial property instead of their private shares. It implies all co-owners have the exact same rights over the residential or commercial property, even if there is a substantial difference in the financial contributions made by various owners.
So, you (being a co-owner) can not offer or mortgage your share of the residential or commercial property without the approval of the other co-owner(s), even if you pay the significant part of the mortgage payments, expenses or maintenance.
Limited estate preparation. Under the right of survivorship, the residential or commercial property passes automatically to the surviving co-owner(s) without needing a will or probate. This makes it challenging to make sure that the residential or commercial property passes to the intended recipients after the death of the enduring co-owner(s).
Potential tax ramifications. Joint tenancy can have tax implications for the surviving co-owner(s) upon the death of one co-owner. It is because the departed owner's share of the residential or commercial property to the making it through co-owner(s) is considered a present for tax functions.
What is decoupling?
Decoupling is when one co-owner buys over the share of another co-owner, or transfers their share to another co-owner by way of a present to relinquish their ownership entirely. The co-owner who has transferred their stake will be dealt with as a first-timer, as they no longer own the residential or commercial property.
This is typically the case when a couple wishes to own a 2nd residential or commercial property without sustaining Additional Buyers Stamp Duty (ABSD). For instance, a better half can offer her share to her husband and purchase a second residential or commercial property later on without paying ABSD. She can then use the conserved quantity for other home-related purchases, such as furnishings and/or home remodelling.
Why is it hard to decouple a joint occupancy?
In Singapore, decoupling under a joint tenancy is a bit complex. To decouple, you need to go through a legal severance, typically a divorce. You will require to connect to a residential or attorney to sign an Instrument of Declaration and then lodge it with the Singapore Land Authority (SLA).
Note that decoupling is only possible for personal residential or commercial properties in most circumstances. For an HDB residential or commercial property, you need to connect to the HDB to understand whether you can or can not decouple it.
What is occupancy in common?
Tenancy in typical is another form of ownership where each co-owner holds a specific percentage share of the residential or commercial property, typically depending on their contribution to the purchase cost. For instance, you could own 70% of the residential or commercial property while your sis (another financier) owns 30%.
Since the shares in the residential or commercial property are plainly divided, you may sell or mortgage your part to a 3rd party without needing the approval of other co-owners. You can also leave it for another individual or third-party of your option in your will.
Tenancy in typical is a popular option for organization partners or good friends who desire to invest together in a residential or commercial property but still desire to retain the liberty of selling or mortgaging their share of the residential or commercial property individually. Sometimes, couples who can not marry might also choose occupancy in common.
Taking the exact same example as above, if the house was concurred upon tenancy in common, the youngest boy could challenge the eldest son around what is in the will. In such a scenario, the residential or commercial property would be distributed according to the will.
What takes place to a joint occupancy when a co-owner dies?
Upon the death of one owner, the shares of the co-owner(s) remain the very same. Unlike joint tenancy, there is no right of survivorship. This indicates the departed owner's share will not instantly transfer to the surviving co-owner(s). It will be distributed according to the guidelines mentioned in the will.
If there is no will, the deceased's share in the residential or commercial property will be administered to the beneficiaries as per the arrangements of the Intestate Successions Act.
Pros of tenancy in common
More flexibility. Unlike joint occupancy, tenancy in common enables each co-owner to own a particular share of the residential or commercial property and hence enables higher versatility in regards to funding and ownership plans. This type of ownership enables each owner to disperse or move their share of the residential or commercial property to whomever they desire by specifying it in their will.
Freedom to offer or mortgage. This type of ownership allows each co-owner to offer or mortgage their share of the residential or commercial property independently without needing permission or consent from the other co-owners.
With occupancy in common, you can likewise guarantee that your share of the residential or commercial property will go to a particular person or third-party and not your co-owners by default. This enables you to prioritise your children or sibling to acquire your share over your spouse after you pass away.
Allows decoupling. Unlike joint occupancy, decoupling is an uncomplicated procedure for tenancy-in-common. Decoupling allows co-owners or debtors to buy a 2nd residential or commercial property without paying ABSD.
All you require to do is sell your share of the residential or commercial property to the other co-owner(s) or a third-party, and the decoupling is total. If you currently have plans to purchase a 2nd residential or commercial property later, it is advised to split the residential or commercial property 99-1 to save money on the Buyer's Stamp Duty (BSD) payable upon transferring your share to another co-owner.
Right to reside on the residential or commercial property. You may think that if an owner has more share in the residential or commercial property, they can kick your or the other co-owners out of the house in a dispute. However, it doesn't work like that.
Under occupancy in common, all the co-owners can live in the residential or commercial property regardless of the size of their share. All legal choices associated with the residential or commercial property must be made collectively, even if a co-owner holds a little share.
Cons of tenancy in common
No defense from financial institutions. Unlike joint occupancy, tenancy in typical does not protect the co-owners from the financial institutions of individual owners. This indicates that if one owner sustains a financial obligation, your share in the residential or commercial property can likewise be taken by their creditors.
Potential for Conflict. Tenancy in common can create conflict in between the co-owners. Since each owner has the capability to offer or mortgage their share of the residential or commercial property as they wish, it can cause disagreements over the usage and management of the residential or commercial property.
For example, if a co-owner desires to sell his/her share of the residential or commercial property to somebody else or will it to their business partner, there is absolutely nothing you can do about it.
How do I check the kind of ownership of my residential or commercial property?
For personal residential or commercial property, house owners can get info about the kind of ownership by paying $5.25 for "Residential Or Commercial Property Ownership Information" through Integrated Land Information Service (INLIS).
HDB house owners are enabled to check their manner of holding totally free of cost by logging into My HDBPage.
What is the difference in between a joint occupancy and an occupancy in common?
The table below highlights the crucial distinctions between the 2 types of co-ownership of residential or commercial property in Singapore:
How does the ownership type affect your mortgage mortgage?
If you have actually used up a mortgage loan to fund your home purchase, all co-owners have joint liability for the mortgage. If one owner passes away, the other co-owner(s) are still accountable to repay the mortgage, or the bank will foreclose on the residential or commercial property.
When identifying mortgage eligibility, banks are just concerned about your Total Debt Servicing Ratio (TDSR) and Mortgage Servicing Ratio (MSR). The ownership type - be it joint tenancy or occupancy in typical - does not impact your mortgage approval.
Note that what proportion of mortgage payment each co-owner is paying is a private arrangement between the co-owners or borrowers. The way of holding makes little difference when it concerns mortgage loans.
Can I change from joint occupancy to tenancy in typical?
What if you currently have a joint occupancy but desire to decouple it? Decoupling is rather complicated under joint tenancy. But here is fortunately: you can transform the way of holding from joint occupancy to occupancy in common, and vice-versa.
Note that if you desire to transform your holdings from joint occupancy to tenancy in typical, both owners must have a 50-50 share-no more, no less. For instance, if you and your spouse are co-owners however desire to switch to tenancy in typical, then each one of you will need to own/hold a 50% share of the residential or commercial property upon severance, regardless of how much more you had actually paid in the residential or commercial property's purchase price.
Conversely, you can change from a tenancy in typical to a joint tenancy just if the share split is currently 50-50. This indicates you might be needed to move part of your interest to the other co-owner(s) in order to make the shareholdings equal.
For example, if the ownership is split into 60-40, you must move shares to make it 50-50 before you can use to change to a joint occupancy. Note that this ownership transfer may attract payment of stamp responsibilities as well.
If the residential or commercial property is still under a mortgage, you will require the consent of the lender bank before altering the way of holding in the residential or commercial property.
The lending institution bank has the right to not provide authorization for the conversion. In such a circumstance, you need to pay off the exceptional loan quantity before using once again for conversion in the way of holding.
How can you convert the manner of keeping in Singapore?
In Singapore, the "conversion" of joint tenancy to tenancy in common is done by accommodations and signing up a copy of the Instrument of Declaration with the SLA. All the existing co-owners will need to sign a statutory declaration before a Commissioner for Oaths to specify their objective to hold the residential or commercial property as joint tenants.
When the conversion is concurred upon by all co-owners, they will sign the Instrument of Declaration mentioning their objective to alter the way of holding.
Note that this will incur legal fees, normally between $1,000 and $1,500. Otherwise, the co-owner(s) wanting to hold the residential or commercial property as tenants in common will sign the statutory declaration specifying their intention as such. The solicitor will then properly serve the Instrument of Declaration on the other reluctant co-owner(s).
For personal residential or commercial property, you ought to speak with a law company or residential or commercial property attorney considering that the subsequent treatment and steps can be complicated.
For an HDB residential or commercial property, you need to either designate your own lawyer or seek assistance from HDB straight to alter the manner of holding.
Which kind of ownership is right for you?
Both joint occupancy and occupancy in typical have their own pros and cons. What will work better for you depends upon your personal scenarios and the reason you are buying the residential or commercial property. If you are getting a home with your spouse to remain in it with your household, both kinds of ownership should suffice.
But if your objective behind buying a residential or commercial property with a spouse or relative is to ensure the residential or commercial property passes flawlessly to the making it through co-owner(s) in case one of the owners passes away, joint occupancy may be the best option for you.
On the other hand, if you are a financier or acquiring the residential or commercial property with another investor or buddy for higher versatility and creating rental income or offering for gains, then occupancy in typical could be more apt. Moreover, if you ever need to offer your share of the residential or commercial property to satisfy any financial requirement, you will be totally totally free to do so.