Judicial Review in Kenya: The Keroche Industries Case and the Limits of Retrospective Taxation

Introduction

The relationship between taxpayers and revenue authorities is founded not only on statutory obligations but also on the constitutional principles of fairness, legality, transparency, and accountability. While the Kenya Revenue Authority (KRA) is empowered to assess and collect taxes, that mandate must always be exercised within the confines of the law.

The landmark decision in Keroche Industries Limited v Kenya Revenue Authority & 5 Others remains one of Kenya's most authoritative decisions on judicial review and administrative law. The High Court held that public authorities cannot exercise statutory powers arbitrarily or retrospectively where doing so undermines legitimate expectations and violates the rule of law.

The judgment has become a leading authority on the doctrines of legitimate expectation, administrative fairness, proportionality, abuse of power, and the celebrated Wednesbury principle of reasonableness established in Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223.

For businesses, investors, tax practitioners, and public institutions alike, the case continues to define the constitutional limits of governmental decision-making.

The Background of the Dispute

Keroche Industries Limited was licensed by the Customs Department in the late 1990s to manufacture fortified wines. Following approval by the relevant tax authorities, its products were classified under Tariff Heading 22.04, attracting excise duty at the applicable rate of 45%.

For approximately nine years, the company operated its business, priced its products, and paid taxes in accordance with this tariff classification. During this period, KRA consistently accepted the classification without objection.

In November 2006, however, KRA informed the company that its products had allegedly been incorrectly classified and ought instead to have fallen under Tariff Heading 22.06, attracting a significantly higher tax rate of 60%.

Rather than applying the revised classification prospectively, KRA reassessed Keroche's tax liability retrospectively for the years 2002 to 2005 and demanded payment of approximately Kshs. 1.1 billion within fourteen days.

The company challenged the decision through judicial review proceedings before the High Court.

The Legal Issues Before the Court

The Court was invited to determine several significant questions of administrative law, including:

• Whether judicial review was available despite the existence of alternative statutory tax dispute mechanisms.
• Whether KRA could lawfully apply a revised tariff classification retrospectively.
• Whether the taxpayer had acquired a legitimate expectation arising from KRA's longstanding conduct.
• Whether the retrospective tax demand constituted an abuse of statutory discretion.
• Whether the decision satisfied the standards of reasonableness established under the Wednesbury doctrine.

Each of these issues has had a lasting influence on Kenyan public law.

Judicial Review and the Right to Access the Courts

KRA argued that the High Court lacked jurisdiction because Keroche had failed to exhaust the available tax dispute resolution mechanisms before approaching the Court.

The High Court rejected this argument.

The Court recognised that while statutory tribunals ordinarily provide the primary avenue for resolving specialised disputes, judicial review remains available where public authorities exercise power unlawfully or in violation of constitutional principles.

The Court emphasised that access to justice is a constitutional safeguard that cannot be curtailed merely because an alternative statutory procedure exists. Where the legality, fairness, or rationality of administrative action is under challenge, the High Court retains supervisory jurisdiction.

This principle has since become central to Kenyan administrative law and continues to guide courts when determining whether exceptional circumstances justify bypassing statutory remedies.

Legitimate Expectation: Protecting Public Confidence

One of the most enduring contributions of the Keroche decision is its comprehensive treatment of the doctrine of legitimate expectation.

For nearly a decade, KRA had consistently accepted the applicant's tariff classification. The company had invested significant capital, structured its operations, developed pricing models, and prepared long-term business projections based on the understanding that the classification had been approved by the tax authority.

The Court held that this conduct gave rise to a legitimate expectation deserving of legal protection.

Although public authorities may correct genuine administrative mistakes, they must do so fairly and prospectively unless legislation expressly authorises retrospective action.

Businesses should not bear the financial consequences of governmental inconsistency where they have acted in good faith upon official representations.

The doctrine therefore serves not merely to protect private interests but also to preserve public confidence in governmental decision-making.

Retrospective Taxation and the Rule of Law

The Court was particularly critical of KRA's attempt to impose tax liabilities retrospectively.

Retrospective taxation creates uncertainty because it alters legal consequences after taxpayers have already arranged their affairs in reliance upon the existing legal position.

The Court observed that certainty is an indispensable component of the rule of law.

Investors require predictable legal and regulatory environments to make commercial decisions. If public authorities could revisit settled tax positions years later, businesses would operate under perpetual uncertainty.

The Court therefore concluded that retrospective application of the revised tariff was:

• irrational;
• unreasonable;
• arbitrary;
• oppressive;
• discriminatory;
• procedurally unfair;
• an abuse of power; and
• inconsistent with constitutional principles.

Although Parliament may expressly legislate with retrospective effect in limited circumstances, administrative agencies cannot ordinarily achieve the same result through discretionary decision-making.

The Wednesbury Principle and Administrative Reasonableness

The Court's reasoning drew extensively from the English decision in Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223, one of the foundational authorities on judicial review.

Lord Greene MR explained that a public authority acts unreasonably where it:

• fails to consider relevant matters;
• considers irrelevant matters;
• misdirects itself in law;
• acts arbitrarily; or
• reaches a decision so unreasonable that no reasonable decision-maker could have made it.

This standard has become universally known as Wednesbury unreasonableness.

Applying those principles, the High Court concluded that KRA had exercised its discretion irrationally.

Among other considerations, the authority failed to appreciate:

• the taxpayer's long-standing reliance on the approved tariff;
• the devastating financial consequences of retrospective reassessment;
• the absence of procedural fairness; and
• the broader constitutional obligation to exercise statutory powers reasonably.

The demand for more than Kshs. 1 billion payable within fourteen days was found to exemplify administrative arbitrariness.

Abuse of Power and Proportionality

The Court also examined whether KRA's conduct amounted to an abuse of public power.

In answering that question, the Court considered:

• the abrupt reversal of the tariff classification;
• the retrospective nature of the assessment;
• the enormous financial burden imposed;
• the potential destruction of the applicant's business; and
• the absence of adequate procedural safeguards.

While acknowledging the importance of tax collection in funding public services, the Court held that revenue generation cannot justify unlawful administrative conduct.

Public authorities must pursue legitimate governmental objectives using lawful, proportionate, and procedurally fair means.

The Rule of Law and Constitutional Governance

One of the most frequently cited passages in the judgment concerns the constitutional significance of the rule of law.

The Court observed that Kenya operates under a system of limited government in which every public authority is constrained by law.

Administrative convenience cannot replace legality.

Likewise, certainty of law is indispensable to attracting investment and promoting economic development.

The Court affirmed that judicial review exists to ensure that governmental power remains accountable to constitutional standards rather than administrative preference.

Why the Decision Still Matters Today

Nearly twenty years later, the Keroche decision continues to shape Kenyan jurisprudence.

Its principles extend far beyond tax disputes.

The case is routinely cited in matters involving:

• judicial review;
• legitimate expectation;
• abuse of discretion;
• administrative fairness;
• procedural propriety;
• constitutional governance;
• proportionality;
• irrational administrative action; and
• the rule of law.

The judgment has also influenced courts interpreting Article 47 of the Constitution and the Fair Administrative Action Act, both of which reinforce the constitutional obligation that administrative action be lawful, reasonable, and procedurally fair.

Practical Lessons for Businesses

The decision offers several important lessons for businesses operating in Kenya.

Maintain complete regulatory records. Official approvals, licences, correspondence, and tax assessments may become critical evidence should disputes arise.

Act promptly. Businesses should challenge unlawful administrative decisions without delay to preserve available legal remedies.

Understand your rights. Regulatory agencies possess extensive powers, but those powers are subject to constitutional limitations and judicial oversight.

Seek specialist legal advice. Early legal intervention can often prevent disputes from escalating into significant financial liabilities.

Conclusion

The decision in Keroche Industries Limited v Kenya Revenue Authority & 5 Others remains a cornerstone of Kenyan administrative law and judicial review.

The judgment reaffirmed that governmental authority is not absolute. Public bodies must exercise statutory powers consistently with legality, fairness, rationality, proportionality, and the rule of law.

By applying the enduring principles of Wednesbury reasonableness, the High Court confirmed that retrospective administrative action—particularly where it imposes significant financial liabilities after years of official acquiescence—will rarely withstand judicial scrutiny.

For taxpayers, businesses, investors, and public authorities alike, the decision stands as a powerful reminder that constitutional governance demands more than the lawful collection of revenue. It requires that every exercise of public power be transparent, predictable, fair, and accountable.

How We Can Help

Our Public Law and Tax Disputes practice regularly advises clients on judicial review proceedings, tax assessments, administrative appeals, constitutional petitions, regulatory compliance, and disputes involving the Kenya Revenue Authority and other public bodies.

If your business is facing an unlawful administrative decision, retrospective tax assessment, or regulatory action, our team can provide strategic legal advice and robust representation to protect your rights and commercial interests.

 Disclaimer: This publication is intended for general informational purposes only and should not be construed as legal advice. Readers should seek specific legal advice before acting on any information contained in this article. No lawyer-client relationship is created by virtue of reading this publication. 

Good Governance Is Key to Corporate Success: Lessons from Carillion’s Fall

Corporate governance is often discussed in boardrooms, compliance manuals, and annual reports, yet its true importance becomes most visible when it fails. The collapse of Carillion in 2018 stands as one of the most striking examples in modern corporate history of how weak governance, poor oversight, and ineffective accountability can bring down even a major organization. The lessons from this failure remain highly relevant for businesses seeking long-term sustainability and stakeholder trust.

The Rise and Sudden Collapse of Carillion

Before its collapse, Carillion was one of the United Kingdom’s largest construction and facilities management companies. The company held numerous government contracts and operated across several countries, employing tens of thousands of workers and managing critical infrastructure projects.

Despite its outward success, serious governance weaknesses had been building for years. The company reported profits while accumulating significant debts and cash flow problems. Warning signs were overlooked or downplayed by leadership, and the board failed to adequately challenge management decisions.

In January 2018, Carillion entered compulsory liquidation during the Carillion collapse, leaving thousands of employees uncertain about their jobs, disrupting major public projects, and causing heavy losses for suppliers, investors, and pensioners.

Governance Failures at the Core

Post-collapse investigations revealed several critical governance failures:

1. Weak Board Oversight
The board of directors did not provide sufficient scrutiny of management decisions. Effective governance requires directors who are willing to challenge executives, question financial assumptions, and ensure transparency.

2. Aggressive Accounting Practices
Carillion relied heavily on optimistic revenue recognition and accounting estimates. These practices masked the company’s financial difficulties and created a misleading picture of stability.

3. Poor Risk Management
Large and complex contracts were undertaken without adequate assessment of risks. Cost overruns and project delays significantly affected the company’s financial position.

4. Lack of Accountability
Executives continued to receive bonuses even as the company’s financial condition deteriorated. This highlighted a disconnect between executive incentives and the company’s long-term health.

Impact on Stakeholders

The collapse had widespread consequences:

• Thousands of employees lost their jobs or faced uncertainty.
• Pension funds were severely affected.
• Small suppliers and subcontractors suffered financial losses.
• Public infrastructure projects were disrupted.

The failure demonstrated that poor governance does not only affect shareholders—it affects entire economic ecosystems.

Key Lessons for Organizations

The Carillion case provides valuable lessons for companies across industries:

Strengthen Board Independence
Independent and competent directors are essential to ensure management accountability.

Promote Transparency and Ethical Leadership
Accurate financial reporting and ethical decision-making build trust with investors and stakeholders.

Align Executive Incentives with Long-Term Performance
Reward systems should encourage sustainable performance rather than short-term gains.

Implement Robust Risk Management
Organizations must identify, assess, and mitigate operational and financial risks proactively.

Conclusion

Corporate governance is not merely a regulatory requirement—it is the foundation of sustainable corporate success. The downfall of Carillion serves as a powerful reminder that without strong oversight, ethical leadership, and responsible decision-making, even the largest organizations can fail.

For companies aiming to build resilience and maintain stakeholder confidence, the message is clear: good governance is not optional; it is essential.

 

Advisory on Termination Procedures – The Case of Kamuri v Cleanshelf Supermarkets Ltd [2025] KEELRC 2278

Case: Kamuri v Cleanshelf Supermarkets Ltd [2025] KEELRC 2278

 Background

The recent decision in Kamuri v Cleanshelf Supermarkets Ltd provides critical guidance on the standards and procedures required for lawful termination of employment, particularly in cases involving poor performance or misconduct.

 Key Findings from the Case

1. Procedural Fairness is Mandatory
   The Court held that even where poor performance is alleged, the employer must comply strictly with Section 41 of the Employment Act. This includes:
• Issuing a written notice to show cause.
• Conducting a disciplinary hearing where the employee can be heard.
• Allowing representation by a colleague or union representative.
• Using a language the employee understands.
2. Objective Performance Evaluation Required
   Allegations of poor performance must be supported by:
• Documented performance appraisals.
• A clear Performance Improvement Plan (PIP).
• Measurable and communicated performance standards.
• A reasonable period (2–3 months) to allow the employee to improve.
3. Unlawful Deductions from Terminal Dues
   Employers may not deduct amounts (e.g., for loans or unreturned property) from an employee’s terminal dues unless:
• There is express written consent from the employee, or
• It is permitted by law or a contractual agreement.
  In Kamuri, deductions for a Sacco loan and unreturned laptop were deemed unlawful due to lack of consent and supporting documentation.
4. Compulsory Leave ≠ Disciplinary Process
   Placing an employee on compulsory leave without initiating a proper disciplinary or performance improvement process was criticised. The Court found this inconsistent with fair procedure.

 Recommendations

Based on the court’s decision, we advise as follows:

1. Strengthen Termination Procedures

• Ensure written documentation for every step of the disciplinary process.
• Maintain records of verbal and written warnings.
• Use show cause notices, disciplinary invitations, and hearing minutes.
• Document all attempts to improve employee performance before termination.

2. Conduct Fair Performance Reviews

• Implement a structured performance appraisal system with objective metrics.
• Introduce a clear PIP process with timelines and review points.
• Ensure performance standards are communicated and acknowledged by the employee.

3. Review Deductions Policy

• Do not unilaterally deduct terminal dues.
• Obtain written consent for deductions related to loans, advances, or property.
• Ensure documentary evidence exists (e.g., loan agreements, asset handover forms).

4. Staff Training and Legal Compliance

• Train HR and supervisory staff on legal requirements under the Employment Act, 2007.
• Seek legal review of termination procedures before executing high-risk dismissals.

 Conclusion

The Kamuri decision reinforces the importance of due process in termination cases. Employers must not only have a valid reason for termination but must also ensure procedural fairness and compliance with statutory obligations.

Failure to do so exposes the employer to substantial financial liability, reputational damage, and protracted litigation.

For further guidance or assistance in reviewing your internal HR processes, please do not hesitate to reach out.

Procedure for Obtaining Letters of Administration in Kenya

Overview

When a person dies intestate (without a valid will), their estate must be administered by a court-appointed personal representative. This is done through the process of applying for letters of administration, which legally authorizes a person (or persons) to manage and later distribute the deceased’s estate in accordance with Kenyan succession law.

Step-by-Step Process

1. Filing the Petition

The process begins with the filing of a Petition for Grant of Letters of Administration Intestate at the High Court (Family Division) or at designated Magistrates’ Courts depending on the value of the estate.

The following documents must accompany the petition:

• Letter from Area Chief confirming the deceased's dependants and next of kin.
• Affidavit in Support (Form P&A 5) detailing the deceased’s assets, liabilities, and dependants.
• Affidavit of Justification of Proposed Administrator(s) (Form P&A 11) showing capacity and suitability.
• Affidavit of Justification by Sureties (Form P&A 12) sworn by two sureties guaranteeing faithful administration.
• Consent to Petition (Form P&A 38) signed by other persons equally entitled to apply for the grant.

2. Gazettement

After filing, a notice is published in the Kenya Gazette to notify the public of the petition.

• A 30-day objection period follows during which any person may file an objection.

3. Issuance of Grant

If no objections are filed, the court will issue the Grant of Letters of Administration.

• This grant allows the administrator(s) to collect and manage the estate but not to distribute it yet.

4. Confirmation of Grant

Under Section 71 of the Law of Succession Act, the administrator must apply for confirmation of the grant after six months.

• A Schedule of Distribution (Form P&A 15) must be filed outlining how the estate will be shared.
• The court must approve the distribution plan, ensuring fairness and compliance with the law.

 Early Confirmation: The court may allow early confirmation in compelling circumstances, such as urgent financial needs or perishable assets.

Key Legal Considerations

• Due Diligence: Administrators must accurately disclose all estate assets and identify all beneficiaries.
• Consent: All beneficiaries or co-petitioners must provide informed consent to avoid future disputes.
• Accountability: Administrators owe fiduciary duties to the estate and may be held personally liable for mismanagement.
• Dispute Resolution: Disputes arising from objections, omission of beneficiaries, or contested distribution are handled through the Family Division of the High Court.

Conclusion

The administration of intestate estates in Kenya is a structured process governed by the Law of Succession Act (Cap 160). Proper compliance with the legal requirements ensures efficient management and fair distribution of the deceased’s estate.

We advise clients to seek legal guidance early in the process to avoid delays, errors, or disputes—especially where the estate involves land, multiple beneficiaries, or complex family dynamics.

For further assistance or to begin the petition process, please contact Us - drop a comment at the "Comment Section" below.

Review: What happens when one adminstrator dies? what happens when both administrators of an estate die?

Guiding case law: In re Estate of Joel Rukwaro Thuku (Deceased) [2018] eKLR

Detailed analysis of the case is available here   

Summary Analysis/Case Overview:

5. The law regarding the status of a grant where deceased administrators or executors have died is well settled under Section 81 of the Law of Succession in case one or more of several executors or administrators dies.  For clarity purposes, I wish to reproduce Section 81 which provides as follows:

“Upon the death of one or more of several executors or administrators to whom a grant of representation has been made, all the powers and duties of the executors or administrators shall become vested in the survivors or survivor of them”.

 

6. From the wording of this section, there is nothing like substitution unless there is a continuing trust and there is only one surviving executor or administrator in which case the court shall appoint additional executor or administrator.  Section 81 refers to a situation where there are more than one executor or administrator.  This provision is therefore not applicable as all the administrators have died.

 

7. What happens where a sole executor or administrator or where more than one, all have died?  The law of succession does not provide for substitution of a single administrator or executor (see in the matter of the estate of Mwangi Mugure alias Elieza Ngware (deceased) and in the matter of the estate of Mary Wairimu Ngware (deceased) Nairobi HCC Succession Cause No. 2018 of 2001.

 

8. In such a scenario, Section 76 (e) of the Law of Succession comes to play on account that following the death of the sole administrator/executor or all administrators or executors, the grant becomes inoperative through subsequent circumstances.  Subsequently, a limited grant of letters of administration de bonis non would then issue to any of the heirs or beneficiaries with the consent of the rest.  In that regard I am guided by the reasoning in the case of (In the matter of the estate of Hannah Njuki (deceased) Nairobi High Court Succession Cause No. 463 of 1997) where Ang’awa J held that:

“where an administrator dies before completion of administration, the next cause of action should be to apply for a grant of letters of administration de bonis non, which is limited to the completion of the administration of the estate”.

 

In the case where both administrators have dies, such a case is presented to court through an application filed under Section 76 (e) of the Law of Succession and paragraph 16 of the 5^th Schedule.

 TBC...

 

Legislative framework of tax litigation/COURT PROCEEDINGS FOR TAX DISPUTES LITIGATION/

 

 

 The Tax Appeals Tribunal (TAT) was specifically established to hear tax disputes, and effectively serves as the forum of first instance before tax litigation can commence on a tax dispute. Where a case is referred directly to the courts, circumventing the pre-litigation procedure set out by the TAT, the courts will often refer that matter back to the TAT if it comes to the judge's attention that the pre-litigation procedure has been circumvented. There are three main issues that commonly form the subject of tax litigation in Kenya:

· Appeals from technical decisions of the TAT.
· Abuse of process or other administrative excesses by the Kenya Revenue Authority (KRA).
· Infringement of constitutional rights (where taxpayers have filed constitutional petitions).[1]


Legislative framework of tax litigation
Civil tax litigation
The principal pieces of legislation governing civil tax litigation are as follows:
· Civil Procedure Act.
· Tax Procedures Act.
· Tax Appeals Tribunal Act.
· Tax Appeals Tribunal, Appeals to the High Court Rules 2015.
· Tax Appeals Tribunal Procedure Rules 2015.
· Court of Appeal Rules (CA Rules).


Criminal tax litigation
The principal pieces of legislation governing criminal tax litigation are as follows:
· Criminal Procedure Code.
· Tax Procedures Act.
· Tax Appeals Tribunal Act.
· Tax Appeals Tribunal, Appeals to the High Court Rules 2015.
· Tax Appeals Tribunal Procedure Rules 2015.
· CA Rules.


COURT PROCEEDINGS FOR TAX DISPUTES LITIGATION
Civil law
The main stages of typical court proceedings are as follows:
• Lodging and service of the appeal papers.
• Obtaining directions from the judge on how the case will proceed.
• Presentation of submissions, whether written or oral, depending on the judge's directions


Criminal law
The main stages of typical court proceedings are as follows:
• Drafting of the charge sheet by the prosecution, stating the exact nature of the offence for which the accused is charged.
• Plea taking.
• Prosecution presents its case.
• Court makes a determination on whether the accused has a case to answer.
• If it is determined that there is no case to answer, the court will dismiss the case. If, however, there is a case to answer, the accused person will enter his defense.
• Sentencing/judgment of the court on hearing both parties.[2]
TAX DISPUTE PROCESS
Tax Decision – Section 2 & 50 TPA
TO
Objection by Taxpayer – Section 51(1) TPA- within 30 days
TO

Objection decision – Section 51(8) to (11) TPA– Within 60 days

TO

Appeal to Tax Appeals Tribunal– Section 52 TPA
TO

Appeal to High Court / Court of Appeal – Section 53 &54 TPA

[2] Tax litigation in Kenya: overview, Practical Law Country Q&A 9-624-0339 (2016) ;Thomson Reuters

Review: Joint Tenancy vs Tenancy in Common

 

 

What is tenancy?

Where two or more persons take an estate or interest in land by means of an application, transfer, mortgage, charge or lease that dealing must state whether the persons are to hold as joint tenants or tenants in common. If they hold as tenants in common the share of each person must also be stated.[1]

What is tenancy in common?

A tenancy held by two or more people, in equal or unequal shares, each person having an equal right of possession over the entire property, but no right of survivorship.[2]

According to the Land Act of Kenya 2012 tenancy in common is a form of concurrent ownership of land in which two or more persons possess the land simultaneously where each person holds an individual, undivided interest in the property and each party has the right to alienate, or transfer their interest.[3]

Tenants in common do not possess a right of survivorship and on their death their interest passes according to the terms of their will.[4]

Tenant in common holds an undivided share in the property and has unity of possession meaning that; each tenant has a right to possession of the property as a whole but none of them has a right to exclusive possession of any part of the property. A tenant in common may do whatever it is that they want to with their share of the property and this will not affect the tenancy of the other co-tenants in their shares.

In tenancy in common each tenant has a right to possess and use the entire property. Either party may sell or transfer his or her share of the property to any person, for any reason. If one of the tenants does sell or transfer his or her share, then the buyer takes the seller’s place and becomes a tenant-in-common with the party who did not sell his or her share.[5]

For a tenancy in common to be in existence the following must be observable or in other words it must comprise the following. First an interest in property owned concurrently by two or more persons under an agreement of tenancy in common. Each or two or more of the tenants in common must have an undivided interest in the whole property for the duration of the tenancy (right of possession) and there has to be no right of survivorship incident to a tenancy in common, but a remainder may be created to vest ownership in the survivor of several persons who own as tenants in common other preceding interests in the same property. [6] All decisions to develop, mortgage, sell or use the property may only be made collectively by all co owners.

Tenancy in common has various advantages and these are, firstly that it allows an unlimited number of people to co-own a property this therefore means that in case of expensive property they can share the purchase price and can benefit from the use of the property. Secondly the co-owners are allowed to divide the property in any agreeable manner which is not the case in a joint tenancy this means that for example in the case of three co owners person X can own 50%, Y 30% and Z 20%.

Tenancy in common has the advantage of the fact that each owner in a tenancy in common has the right to designate an heir in her will. If an owner passes away, her share of the property passes to the person listed in the will, which allows you to provide a property inheritance, increasing your heir's assets when you pass away. If the property produces income, the heir will receive your portion of the income. This advantage extends to persons who were married and had children in the previous marriage they can inherit your share whilst still allowing your current spouse or partner to live there for life.

The fact that one of the features of a tenancy in common is undivided interests this can be both an advantage and disadvantage. Undivided interests refer to the interest in property owned by tenants whereby each tenant has an equal right to enjoy the entire property. This is because tenants to the property may have contributed different portions towards acquiring the ownership of the property (X 50%, Y 30%, and Z 20%) but still have equal enjoyment to the property and in decision making.

For everything that has advantages disadvantages may inevitably also accompany those advantages. One of the disadvantages of tenancy in common is the potential for one owner's nonpayment of the mortgage, upkeep expenses or repair costs to affect the other owners. If one owner fails to make a payment, the other owners must cover the expenses, although they may do so in the form of a loan to the nonpaying owner. If the nonpayment cannot be resolved, the remaining owners typically must resort to complex legal strategies, such as foreclosure or eviction.

The other disadvantage of tenancy in common lies on its dissolution. Dissolution of a tenancy in common can be a complex matter. If all owners agree to sell the property, they divide the proceeds according to ownership. However, if the owners do not agree to sell, one owner can typically obtain a partition action, which is a court order forcing the sale of the property. This can be a disadvantage if you want to keep the property but another owner wants to sell.

There are several ways in which a tenancy in common can come to an end. The first and most obvious way is when the property is sold (with all the shares) to another person. This means that when all the co-owners have met an agreed to sell their share in the tenancy in common to another person. A tenancy in common is not dissolved by death of a co-owner of the tenancy in common.

The tenancy in common may also come to an end when one owner acquires all the share of the property. This simply means that the other co-owners sell their shares or interests in the property to one person in the tenancy in common. An example would be persons Y and Z who own 30% and 20% respectively of the property in the tenancy in common and sell their shares to person X who owns 50% of the tenancy in common.

Dissolution of a tenancy in common can also take place when the co-owners make an agreement and change the form of tenancy. Having earlier stated that concurrent ownership may take two forms, a joint tenancy and a tenancy in common, the agreement that would lead to dissolution of the tenancy in common by way of change of the form of tenancy, would then be an agreement to become a beneficial joint tenancy.

Joint Tenancy

Joint tenants, on the other hand, must obtain equal shares of the property with the same deed, at the same time. The terms of either a joint tenancy or tenancy in common are outlined in the deed, title, or other legally binding property ownership document. The default ownership for married couples is joint tenancy in some states, and tenancy in common in others

Terminating Joint Tenancy vs. Tenancy in Common

A joint tenancy can be broken if one of the co-owners transfers or sells his or her interest to another person, thus changing the ownership arrangement to a tenancy in common for all parties.

A tenancy in common can be broken if one of the following occurs:

One or more co-tenants buys out the others

The property is sold and the proceeds distributed amongst the owners

A partition action is filed, which allows an heir to sell his or her stake. At this point, former tenants in common can choose to enter into a joint tenancy via written instrument if they so desire.

This type of holding title is most common between husbands and wives and among family members in general since it allows the property to pass to the survivors without going through probate (saving time and money).

Right of Survivorship

One of the main differences between the two types of shared ownership is what happens to the property when one of the owners dies.

When a property is owned by joint tenants, the interest of a deceased owner gets transferred to the remaining surviving owners. For example, if three joint tenants own a house and one of them dies, the two remaining tenants each obtain a one-half share of the property. This is called the right of survivorship.

Tenants in common have no rights of survivorship. Unless the deceased owner's will or other instrument specifies that their interest in the property is to be divided among the surviving owners, a deceased person's interest belongs to the estate.