Choosing the Best Property Ownership Structure for You

When two or more people own a property together, there
are three main ownership structures they can choose from;

1. Joint tenancy;
2. Tenancy in common; or
3. Trustee.

It is important to know which structure is best for
you to ensure you get it right the first time and avoid additional costs.

Joint Tenancy

Joint tenancy is one of the options
for ownership structure. It provides property ownership to tenants in equal
shares. A key feature of this structure is the right of survivorship. This
provides that on the death of either party, that tenant’s share passes
automatically to the other, regardless of the provisions in their will. This
means, joint tenants cannot leave the property in their will. For this reason,
this structure is commonly held by married and de facto couples.

Tenancy
In Common

The second option for property
ownership structure is tenancy in common. This structure allows for property to
be owned in defined shares, for example two people may own the property with
one owing 80% and the other person owing 20%. Unlike joint tenancy, tenancy in
common allows for shares to be transferable. This means, ownership in the
property can be entered into at a later date or left in a tenants’ will.

Trustee

Trustee is the third option for property ownership structure. The
trustee structure allows for land
to be registered in the name of a trustee for the benefit of a beneficiary. Unlike
other ownership types, the person holding legal title in a trustee structure
does not benefit from the profit of the property. The trustee must act for the
benefit of the beneficiary.

To purchase a property as a
trustee you must provide either:

1. An original
   form 20 which your solicitor may draft on your behalf;
2. A certified
   copy of your trust deed; or
3. All
   original documents that create the trust.

Potential Issues With Ownership
Structures

It is important to identify why certain ownership structures may be
wrong for you at the outset. Firstly, tenancy in common allows for property to
be left in a tenant’s will. This can be problematic if a tenant has died
intestate because their interest in the property remains. If this is the case,
the rules of intestacy govern the distribution of the deceased persons estate.
This involves the estate being transmitted to the deceased’s personal
representative who will then lodge for registration of those who are rightfully
entitled to the estate.

Secondly, joint tenancy can potentially go wrong. Holding land by way of
joint tenancy means there is no separation of ownership and shares are unable
to be divided. Married and de facto couples often choose this structure,
however this can become problematic if one party decides to leave the
relationship. This is because in the event of death, separated couples may not
want the other party to gain their share in the property. It is possible to
resolve this issue by severing the joint tenancy and converting it to a tenancy
in common. This will allow for each party to have separate and defined
ownership in the property.

Underlying Costs

The process of purchasing a property is costly, however choosing the
wrong ownership structure may lead to additional fees that could have been
avoided. For example, transfer duty is the tax payable by the buyer on all
property purchases. This means, if you purchase property as an entity and
decide a month later to change that ownership to 2 individuals as joint
tenancy, transfer duty will have to be paid twice. This can be quite
significant as transfer duty is calculated using the purchase price of a
property. For example, if a property is valued at $5,000,000, the transfer duty
with no concession would roughly be $260,000. This means a total of $520,000.00
will be spent purely on transfer duty.

Similarly, every property purchase must be documented by a transfer
document that is lodged at the Titles Office. The titles registry fee is also
calculated using the property purchase price. For example, a $5,000,000.00
property will require a $17,000.00 titles registry fee which would need to be
paid again to transfer the property to a different ownership structure.

Lastly, for a transfer of property to a different entity will also
involve the review and drafting of documents, completing title searches and
arranging settlement with all parties. Therefore, it is important to ensure you
have chosen the correct ownership structure the first time round to avoid
doubling up on any fees.

If you have any questions about property structures and which ownership type may best suit your needs, then please contact our office on (07) 3876 5111 for an obligation free 20 minute consultation.