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The Options for Owning Property - Joint Tenant vs Tenants in Common

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What sort of things should you worry about when buying a property? The neighbours? Any new housing estates that are likely to be built in the locality? Possibly. However, if you are buying the property jointly with someone else then perhaps the thing that you should worry about the most is…….each other.

When I started my training as a solicitor back in 1979 it seemed that most properties were purchased either by single persons or married couples. However, this soon started to change partly due to changes in society but also because of rising property prices and many people becoming unable to afford to buy a property on their own. Accordingly, it has become commonplace for two (sometimes more) persons to buy a property together. They may be in a relationship or just friends who are buying together purely for economic reasons.

Amidst the excitement of buying a property it is perhaps understandable that the last thing that joint buyers want to think about is making provision to avoid the event of a future disagreement between them, particularly in relation to the division of the sale proceeds. However, it is crucial that this is addressed.

In law there are two ways in which joint owners can own property – as “Joint Tenants” or “Tenants in Common”. Do not be confused by the reference to “tenants” - these are old legal expressions and have nothing to do with leases or tenancies. Broadly speaking the difference between the two is that joint tenants own the entirety of the property together and do not have separate shares. In the event of a sale of the property the sale proceeds are divided equally between the joint owners, and in the event of the death of one of the joint owners then their interest automatically passes to the other joint owner(s) without the requirement for any legal work. Tenants in Common, on the other hand, do have separate shares which do not automatically pass to the other joint owner(s) in the event of death. In the event of a sale the sale proceeds will be divided in accordance with the shares.

It is fair to say that most married couples and civil partners opt to own their property as joint tenants, as they are happy for their share to pass to their spouse/partner in the event of their death. However, there are some circumstances in which they may wish to own as tenants in common, which I will touch upon below.

So why should some joint owners own their property as tenants in common? There are all sorts of reasons but here are a few examples:

The joint owners are not in a relationship (EG they are two friends who are buying together for convenience or economic reasons) and would not want their share in the property to pass to the other in the event of their death

One of the joint owners has contributed a higher percentage to the purchase price than the other, and both joint owners have agreed that as and when the property is sold the sale proceeds will divided in accordance with the agreed percentages.

Part of the purchase money has been gifted by the parents of one the joint owners, and they wish to ensure that this will belong to their child.

The joint owners have contributed to the purchase equally and/or are in a relationship but wish to ensure that their share eventually passes to children from a previous relationship.

The joint owners are a married couple or civil partners and may wish to hold the property as tenants in common as part of their Inheritance Tax planning.

When should the decision be made? The joint owners need to decide about how they are own the property, and how it is to be recorded, prior to completion of the purchase. The decision can if necessary be amended if necessary in the future. From experience I know that, for reasons of simplicity and not wanting to delay the purchase, many joint buyers will opt to own the property as joint tenants in the first instance but with the intention of reviewing this once they have completed the purchase and settled into the property. However, again from experience, I know that many such buyers will never get around to the review. Unfortunately, in some cases, this may be to their detriment.

How is the decision recorded? There are a number of options. If the joint owners have decided to own as joint tenants then the agreement is simply contained in the deed for the purchase of the property. If they have decided to own as tenants in common the agreement can in some cases again be contained in the purchase deed, but in other cases it will be necessary to set out the agreement in a separate document known as a declaration of trust. The declaration of trust will usually be prepared a solicitor who specialises in such matters rather than the conveyancer who is dealing with the purchase. The declaration may, for example, contain provisions which deal with the calculation of the shares in the event of a sale. It may also provide for the event of one of the joint owners buying out the other’s share in the event that the other wishes to sell.

As I have said above it is very important that the joint ownership of the property is properly considered, and a decision made before the purchase is completed. The conveyancers who are acting for the buyers should make their clients aware of the options, advise them of the implications and ensure that, whichever option their client selects, it is properly recorded.  Unfortunately disputes between joint owners are not uncommon, and sadly some of them end up in Court. In most of those instances the dispute arose because the joint owners had not been properly advised, and/or their decision had not been correctly recorded, at the time of their purchase. All conveyancers should be aware that the Courts have been very critical of conveyancers who have seemingly failed to advise their clients about their joint ownership options in in those cases.

If you are joint owners who have already purchased a property and are unsure about whether or not your wishes have been correctly recorded, it is not too late to do something about it (provided that you are in agreement) and you should seek advice from a solicitor who specialises in declarations of trusts at the earliest opportunity.

Finally, although of course we should all remember the importance of making a Will, it is particularly important that tenants in common should do so to make provision for their share in the property in the event of their death.

For advice about joint ownership of property, please contact me on 01926 954712 or another member of the Feldon Dunsmore team.