Co-Tenant vs Subtenant: Pros and Cons

June 2, 2022
owning your own home

With growing property costs, people are more inclined to invest through a shared property ownership structure. They become or get a co-tenant or subtenant.

When done right, joint property ownership may be a terrific method to reduce taxes and increase your wealth, but you must know what you’re doing!

This article will go through co-tenancy, how it works and the benefits and drawbacks.

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Co tenancy and sub tenancy for landlords and tenants

If you’re a landlord leasing an apartment to a co-tenant, make it explicit in the lease what you allow and don’t allow, such as whether or not your renter can sublease your property. 

However, as a renter, here’s more information about subleasing to help you determine if it’s appropriate for your rental.

Tenancies have existed for a long time. But, according to tradition and rulings rendered by judges in judicial disputes, the fundamental legislation governing tenancies evolved progressively over time.

This type of law is known as “common law.” One of the critical issues is that it is frequently challenging to determine what it is. 

Although, as a result, legislation is used to modify common law because some features of common law are deemed undesirable or to ensure that people understand what the law is.

When applying for rental homes with others, you can form your lease agreement in two ways: co-tenancy or sub-tenancy. 

Both have advantages and disadvantages, and the decision depends entirely on your unique circumstances. 

Before signing a lease, you should discuss your options and ensure the landlord is satisfied with your arrangement.

What exactly is co-tenant?

Image source: Apartmentguide

In Australia, co-tenancy is a frequent practice where more than one individual participates in renting the property.

Rising Australian property prices have made it harder to own property, whether owner-occupier or investment. 

So, by pooling your money and combining your borrowing power, property co-ownership dramatically decreases expenses and makes property ownership more accessible to the simple Australian.

Pros and cons of co-tenant in Australia 

Property ownership as co-tenants has some advantages. Among these benefits are the following

Pros of a co-tenant

Possibility of Avoiding Probate

If a deceased co-tenant had nothing else at the time of death or has disposed of assets through a trust, having a joint tenant with the right of survivorship may allow an individual’s estate to escape probate. 

Many states in Australia have small estate legislation that enables the family to avoid the formal probate process if the probate estate is worth less than a specific amount. 

Estates, including real property, are frequently exempt. However, because the property interest transfers after death, the individual no longer owns the property upon death.

Survivorship Rights

Co tenancy and sub tenancy for landlords and tenants

When joint tenants own an asset, the other tenant receives the decedent’s share at death, and this frequently involves an automated process requiring little or no documentation to transfer property.

Flexibility

Sometimes plans change, and people must relocate to a new location. Once you locate an excellent successor, it is relatively easy to transfer the tenancy from one person to the next.

Cons of a co-tenant

Although there are some benefits to owning property as co-tenants, there are several drawbacks.

Creditors’ Exposure

In rare situations, one of the joint tenant’s creditors might demand a sale of the property, exposing the other joint tenants to such dangers even though they did not profit from the other joint tenant’s debt. 

Lack of Liberty

When a person holds property as joint tenants with another person, they must obtain permission from the other joint tenants to create specific property arrangements. 

They may, for example, require approval to obtain a mortgage on the property or transfer their part to someone else. This might be challenging if shared renters do not agree or get along. 

A person may also ask a court to partition the property by forcing a sale or physically separating it, so it is no longer possessed in equal halves.

Absence of Inheritance Rights

Some people may buy property to live out their lives and then leave it to their children or loved ones when they die. 

On the other hand, joint tenants do not have the right to transmit their stake after death. 

They simply no longer own any of the lands. Even if a person’s will indicates otherwise, this is true.

What is a subtenant?

Image source: Investopedia

Subletting or subleasing a residential home is not the same as obtaining flatmates. Therefore, it is essential to understand the rules before subletting your accommodation.

Subleasing may be an excellent way for a tenant to increase income flow while decreasing rent expenditures. A subtenant is when a tenant permits a third party to rent the same property.

Most lease agreements include a clause prohibiting subletting without the landlord’s authorisation. 

However, landlords must also understand the benefits and drawbacks of allowing tenants to sublease their homes.

Pros and cons of sub-tenants in Australia 

There are many advantages to commercial subleasing, especially in today’s market where many enterprises and individuals feel the pressure.

Pros of sub-tenants

Cost savings

The pricing is one of the most significant advantages of commercial subleasing. Sublease rents are nearly always significantly lower than direct lease rents. 

Finding a property at a fair price might be difficult if you want a small amount of space. However, you have a higher chance of just paying for what you need if you sublease.

Flexibility 

A typical landlord in Australia will typically require you to commit to a minimum term of three years with the opportunity to extend. 

However, most sublease agreements are for six to 12 months, making them ideal for firms looking for short lease terms.

Permissive

It is critical to understand that a sublease is a legally enforceable contract based on the initial lease. 

Therefore, to reduce your risks, thoroughly check the provisions of both the sublet and the original lease.

Cons of sub-tenants

Co tenancy and sub tenancy for landlords and tenants

Lease clauses are unfavourable

If the sublessor has negotiated less-than-ideal conditions with their landlord, they may try to pass them along to you.

So, request a copy of their original contract and do your homework by comparing your conditions to comparable homes on the market.

Delays in maintenance

If you need landlord maintenance and repairs, you may have to notify your sublessor, which can cause delays and problems because you involve a third party.

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