Joint Tenancy vs Tenants in Common – Which is better for decoupling ?

Difference between Tenancy in Common and Joint Tenancy

Table of Contents

Introduction

Manner of holding is an area that is often overlooked in our real estate journey. When we make our first and even second property purchase, we often defer to the default option of selecting joint tenancy as the default manner of holding.

Similar to many things in life, the default option may not always be the most advantageous option for us. Kudos to you for taking your first step in considering the differences between joint tenancy vs tenants in common and which is actually better for us.

In this article, we will dive into detail of the two available options for manner of holding, joint tenancy and tenancy in common. Further to that, we will specifically touch on the viability of each option when it comes to decoupling.

What is manner of holding ?

To set the context, let’s define what manner of holding means.

The purchase of every property in Singapore comes with a title deed, that title deed is legally registered in Singapore Land Authority’s (SLA) land registry.

Within that title deed, you will have to define your manner of holding which defines the structure in which the property is being held in relation with other co-owners of the property, i.e your spouse, family member or co-investors.

The pros and cons of joint tenancy vs tenants in common

At a high level, you will only have two options to consider for manner of holding, Joint Tenancy vs Tenants in Common.

We will touch on the details for each option in section that follows.

Joint Tenancy

Equal and undivided share

Joint Tenancy refers to a manner of holding in which each co-owners own equal and undivided share in the property.

This manner of holding does not seeks to discriminate the amount of share holding entitled to each co-owner based on the amount funds contributed.

Equal rights and decision making

Aside from equal and undivided shares, each joint owners are also entitled equal rights of a property owner. This meant that every legal decision, including the rental and sale of property has to be made jointly.

Right to survivorship

This is a notable and important feature that comes with a joint tenancy arrangement. In the case of the unfortunate demise of one of the joint owners, his or her interest is automatically transferred to the surviving joint owners.

This will supersede any will that have been established by the deceased party, regardless whether the deceased party meant for the joint owner to inherit property or not.

Typical use case

Joint tenancy is commonly used when the property purchased is a marital property. It’s features meet the general requirement of a married couple.

Tenancy in Common

Clear delineation of share and interest in property

Tenancy in common operates on the opposite spectrum of joint tenancy, it facilitates a clear delineation of individual share ownership in a property.

You will be able to divide share ownership in a property in any allotment you deem fit and allocate that to different shareholders.

Example, in the case of purchasing an investment property, shares can be divided into different portions in conjunction with the proportion of funds invested by different joint investors in the property.

Free to make individual decision

Unlike joint tenancy, tenancy in common allows each joint owner the freedom to make legal decisions on their share of property, without consulting the other joint owners.

This meant that they are entitled to sell their share of property without having to consult other joint owners.

No right to survivorship

Right of survivorship is not applicable when tenancy in common is adopted. In the case of demise for any joint owners, his or her share of the property will be handled in accordance to the will that has been established or in accordance with the Intestate Succession Act’s provision in the absence of a will.

Typical use case

Tenancy in common is commonly adopted by property owners purchasing the property as an investment property, where the need to allocate shares in accordance with funds invested is important.

It is also the go-to option for couples with the intention to decouple in the future. As a side note, decoupling is an approach often adopted by couples looking to purchase a second property without incurring additional buyer stamp duty.

We will dwell into the topic of tenancy in common in relation to decoupling in latter sections.

Factors to consider when comparing joint tenancy vs tenants in common

At this point, it will be an opportune time to segway into the factors to be considered when deciding which manner of holding to adopt.

Objective of property purchase – Marital or Investment

The first factor to consider would be the objective of your property purchase, considering whether you are purchasing the property purely as a marital property for homestay or would you be treating the property as an investment asset.

If your objective is the latter, then the decision to select joint tenancy as the manner of holding is straight forward.

Joint tenancy with its undivided share feature caters to the nature of a marital property in which spouses do not need to strictly delineate shareholding in the property based on financial contribution.

In the context of a marital property, it is common for one party to contribute proportionally more in terms of finances, while the other party contributes by tending to other important domestic affairs.

However, if this is a property purchased with investment as the main intent. Tenancy in common would prove to be a better option.

It satisfies the fundamental requirement of delinating property share ownership in relation to financial contribution and it provides shareholders the flexibility to make decisions for their shares, without having to consult other joint owners.

Relationship and trust

This is a factor that should not be overlooked, especially when the property is purchased with your spouse.

Your decision on the manner of holding to be adopted when purchasing a property together with your spouse, could have lasting effects with regards to relationship and trust down the road.
The typical concern of adopting a tenancy in common structure with different shareholding proportion could result in the minority shareholding feeling insecure.

Consider the case whereby a couple consists of husband and wife purchasing a property. If they were to adopt a 99-1 share split to facilitate future decoupling plans and assuming both couples invested equally in the property.

The minority 1% shareholder could have concern over his unequal share holdings despite making substantial financial contributions to the property.

Aside from that, the absence of the right to survivorship feature that comes with joint tenancy, could be an issue for your spouse, as she will not automatically gain full ownership of the property in view of your unfortunate demise.

Important to have a will in place when selecting Tenancy in Common

In line with the discussion on right to survivorship, if you have decided on tenancy in common as the manner of holding to adopt. It will be important for you to have a well thought out succession plan and have it drafted into a will.

In the absence of a will, the Intestate Succession Act or the Muslim Law Act will determine the distribution of your asset. And your family could be met with unforeseen challenges when dealing with the asset in the event of an unfortunate demise of you or your spouse.

Consider the following example of a husband, wife and 2 children aged 21, purchasing a property under the tenancy in common structure, without drafting a will. In the event of the unfortunate death of the husband, instead of the wife inheriting 100% of the property.

The Intestate Succession Act will result in the wife receiving one half of the estate and the children receiving an equal proportion of the other half of your share. This could pose challenges for your family, if your child is equipped with the best expertise on how to manage the asset they inherited given their young age.

The consideration to decouple in the future

The last factor serves as a lead into the crux of our article, many couples started their exploration into tenancy in common due their intention of decoupling in the future.

Setting the context for readers that are new to decoupling. The objective of decoupling is to enable couples to purchase their second property, without incurring ABSD.

It achieves that by initiating an internal buy and sell process between you and your spouse, this is also known as part purchase. Essentially, you will buy over your other joint owners share in the property, freeing up the other parties name for the purchase of the 2nd property without ABSD.

Insert internal link – ABSD – Is it worth paying ABSD for your second property ?

There is a cost to decoupling

An important point to note, there is a cost that comes with decoupling. Buyer stamp duty (BSD) is one of the most significant cost components to be incurred.

Consider the following example.
You and your wife own a private condominium valued at $1.5 million.
Assuming a 50-50 joint tenancy holding structure.

If you were to buy over your wife’s 50% share in the property valued at $750,000. You will have to incur a buyer stamp duty of $17,100.

For an in depth understanding on the cost of decoupling refer to this article.

As a side note, if you are looking to calculate how much funds you need for decoupling and how much proceeds you will receive from decoupling. Head over to the decoupling calculator make your calculation.

Tenancy in common provides an opportunity to reduce the cost of decoupling

This is where your choice of manner of holding comes into play, selecting tenancy in common provides you the option to allocate specific share proportion between you and your spouse.

Assuming you were to allocate a maximal 99-1 share split, with you owning 99% share in the property and your spouse owning 1% share. When it comes to decoupling, the process of you buying over 1% share from your spouse, will only result in you incurring buyer stamp duty on that 1% share, instead of the usual 50% share.

Wrapping up the section on factors to consider

Wrapping up the section with a quick summary, the 3 key factors to consider when deciding on the manner of holding to adopt will be.

  • Objective of property purchase – Marital or Investment
  • Relationship and trust
  • The consideration to decouple in the future

We will now move on to dive into the specific benefit of tenancy in common and the ability to structure a 99-1 share split by using tenancy in common as a manner of holding.

The benefit of 99-1 tenancy in common and the decoupling 99-1 strategy

For couples looking to plan ahead with a view of owning multiple properties, they will commonly look to adopt tenancy in common as a manner of holding and seek to achieve a 99-1 share split.

The 99-1 share split facilitates optimal cost savings on buyer stamp duties when it comes to decoupling.

The usual cost of decoupling for a 50-50 joint ownership

Assuming a property is valued at 2.0 million and is held in equal share by a couple.

The cost of decoupling will be as follow

  • Seller stamp duties – Not applicable, assuming property is held greater than 3 years
  • Legal fee – $4,000, the average legal fee for decoupling ranges from $3,000 to $5,000
  • Early loan redemption penalty – Not applicable, assuming property has passed its lock in period
  • Buyer stamp duty – $24,600, levied on 50% of 2.0 million

Significantly lower buyer stamp duty when applying 99-1 share split

Now consider the option of adopting a 99-1 share split with tenancy in common as manner of holding.

Other all cost detailed above remains the same, except for buyer stamp duty.

Buyer stamp duties will be levied only on the 1% share, which is valued at $20,000 and the resulting buyer stamp duty will only cost $200.

Comparing the cost saving between the usual 50-50 joint ownership model and the 99-1 share split tenancy in common model, you will be looking at a cost saving of $24,400.

Enhanced financing – still get to finance the property with two person’s income and CPF

Compared with the option of purchasing the property using one person’s name instead of two person’s name structured in a 99-1 ownership model.

The former option of purchasing the property with one name limits the financing of the property to one person’s CPF. While the 99-1 share split model allows the financing of the property purchase using both person’s cpf.

Can you change your manner of holding ?

You typically select your manner of holding when you purchase your property. As part of the sale and purchase process for a new property, your conveyancing lawyer will require you decide your manner of holding.

Having said that, switching between manner of holding is possible, but the process will be more challenging.

Switching from joint tenancy to tenancy in common will result in property owner having a 50-50 share ownership, you will not be able to directly convert from a joint tenancy to a tenancy in common structure with an uneven share split, i.e 99-1.

In order to achieve a share split with different proportion, joint owners of the property will have to undertake another sale and purchase process which will incur buyer stamp duty and seller stamp duty.

Similiarly switching from tenancy in common to joint tenancy would require joint owners to have equal 50-50 share in the current tenancy in common structure before conversion.

For more legal enquiries regarding decoupling head over the following resource for decoupling lawyer and decoupling legal fee.

Checking your property current manner of holding

For private property, you will be able to check your current manner of holding by purchasing a copy of the “property ownership information” from SLA , it will cause you $5.25.

For HDB, you can login to MYHDB page to check for your properties manner of holding.

Does your manner of holding affect your mortgage ?

Your property’s mortgage will not be affected by your manner of holding. The mortgage is a private agreement between a lender and borrower.

In the case of borrowers not being able to repay mortgage, the bank will simply seized the property as whole, irregardless of the ownership share split

More reads, more gains ?

Kudos on making it this far. The fact that you have invested the last 5 mins reading this article. We believe you are a like minded real estate investor looking to beat the rat race by getting more out of your real estate investment.

If so, do check out the following articles.

Guide to purchasing 2nd property in Singapore
How to legally avoid ABSD in Singapore
Decoupling Property Singapore
Sell one buy two strategy

Author

  • Jue Wen

    Jue Wen is the content marketing lead. This means he spend his waking hours researching and writing all things real estate. He believes life is a hustle and there is no joy in grinding away daily in our little rat races. He believes making wise moves in real estate investment can be a game changer. Aside from writing all things real estate, you can find him in your nearest bouldering gym.

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Jue Wen

Author

Jue Wen is the property analyst and content marketing lead at decoupling expertise.
He specialises in helping clients overcome the complexities involved in owning their second private property in Singapore.
He had over 10 years of experience in real estate investing and have written over 40 detail guides on decoupling and minimising ABSD. He is a licensed real estate consultant and holds a Bachelor degree in Business Management from the Nanyang Technological University.

Kenji

Co-Author

Kenji is the Group Division Director of ERA Realty Network.
He have got over 20 years of experience in real estate and have successfully helped over 50 couples purchased their second property. He specialises in helping client achieve the best approach towards acquiring their ideal investment properties while minimising ABSD.