What is Tenancy in Common?
Are you looking to co-own a property but are deliberating whether to opt for a tenancy in common or a joint tenancy? In this article, we explain what tenancy in common is, its benefits, and drawbacks so you can make a more informed buying decision.
Tenancy in common is an agreement between two or more parties who wish to share the ownership of a property. Each owner has a separate and distinct share in the property, owning an equal or different percentage of the property, depending on the agreement between the owners.
To give an example, Persons A, B, and C choose to own a property as tenants in common, and they all agree to Person A owning 40%, Person B owning 35%, and Person C owning 25% of the property. Owners of the property may sell their shares to others and take loans against their share of the property. In the event that a tenant in common passes away, his share of the property is then distributed to his beneficiaries, according to his will.
Joint tenancy versus tenancy in common
Under a joint tenancy, all the co-owners own the property in its entirety. Thus, there will be no splitting of property ownership, and all the owners equally own 100% of the property.
For tenancy in common, however, each owner would have a distinct share in the property, and owners of the property either own equal or different shares.
Tenancy in common and joint tenancy also differs in terms of the corresponding impact arising from the right of survivorship. For properties held in joint tenancy, the right of survivorship applies. If one of the co-owners passes away, the surviving co-owner(s) will automatically have full ownership of the property. Having a joint ownership means that the will of the deceased co-owner is not taken into consideration. Even if the will states that the property should go to specific persons after the co-owner’s passing, the ownership of the property will continue to reside with that of the remaining co-owners, in joint tenancy.
For properties held as tenants in common, the right of survivorship does not apply. This is because each co-owner is only entitled to their own separate and specific share of the property. Upon the death of one of the co-owners, the share owned by the deceased co-owner shall be distributed according to his will.
In the event that there is no written will, the deceased co-owner’s share of the property will be distributed in accordance with the Intestate Succession Act 1967, or the Administration of Muslim Law Act 1966, if the co-owner is a Muslim.
Pros and cons of tenancy in common
If you were to choose to hold your property as a tenant in common, one of the most obvious advantages would be the additional liquidity. You may sell your share of the property to others without affecting the rest of the owners. As an investor, this could be an appealing option, as you can materialise your profits more easily without selling the property in its entirety. If you were to hold your property as a joint tenant, this would have been impossible, as all the owners jointly own 100% of the property.
Furthermore, if you wish to own multiple residential properties in Singapore, holding your first property as tenants in common with your spouse could reduce the obligation of paying Additional Buyer’s Stamp Duty (ABSD) on your second property. This is possible by adopting the principle of decoupling, whereby you could sell your share of the property to your spouse, or vice versa. This frees up one person to buy a new property as a first-time buyer, without incurring the liability to pay the ABSD if you are a Singaporean, or pay a reduced ABSD of only 5% if you are a Permanent Resident.
To further reduce costs incurred during the transfer of ownership of the property between you and your spouse, you may choose to own your first property using a 99:1 split in its share ownership. That way, you will incur a substantially reduced Buyer’s Stamp Duty (BSD) and Seller’s Stamp Duty (SSD), as you only pay BSD and SSD on the 1% of the property ownership that you are required to transfer.
Holding a property as tenants in common means that new buyers can own a share of the property without affecting the share of the other owners. However, having multiple co-owners could sometimes lead to potential disagreement and tensions among them, especially if they develop opposing views on how to use or manage the property. As a co-owner, you could get caught in disputes among the other co-owners. And if the dispute cannot be resolved, it could result in the co-owners filing for a partition action.
There are two types of partitions that the co-owners may file for, namely: partition in kind; and partition by sale. Depending on the court’s ruling, the property may be partitioned in kind, meaning that the property is now physically divided among the co-owners, so that each owner is permitted to exercise their rights over their designated share of the property, without the interference of the other co-owners. However, if the property cannot be divided in kind easily, the court will rule for a partition by sale, whereby the property will be forced to be sold and the profits are then split among the co-owners. This could pose a problem, especially if you had no initial intention of selling the property.
Frequently asked questions
Can I change the holding of my property from tenancy in common to joint tenancy?
Yes, it is possible to switch from tenancy in common to joint tenancy, and vice versa. However, if you are holding the property as tenants in common, you must hold the property in equal shares with your co-owner(s), before a conversion to a joint tenancy can be executed. If you and your co-owner(s) own the property in unequal shares, then a transfer of shares to achieve a 50:50 share ratio is required. However, the co-owner who transfers his shares may incur the SSD, and the co-owner who receives the share will incur the BSD.
If the property in question is an HDB flat, you will need to complete an application process with the authority at the HDB website. For private properties, you would need to register an Instrument of Declaration with the Singapore Land Authority.
How do I check the manner of holding on my property?
For HDB flats, you can check the manner of holding via the HDB’s My HDBPage. For private properties, you would need to pay a fee of SGD5.25 for “Property Ownership Information” on INLIS.
Is tenancy in common suitable for me?
As an investor, tenancy in common is perhaps more suitable for you, especially if you are co-investing in a property with other investors. Tenancy in common allows each owner to have a distinct share of the property, and each co-owner is able to sell their share of the property to others, and in accordance to stipulations in the original contract. It is also easier to split the costs and profits generated by the property based on the percentage share that each owner holds.
In the Singapore context, tenancy in common makes it easier to transfer your share of the property to another co-owner, freeing up yourself to buy another property without incurring the ABSD.
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Disclaimer: The information and/or documents contained in this article does not constitute financial advice and is meant for educational purposes. Please consult your financial advisor, accountant, and/or attorney before proceeding with any financial/real estate investments.