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Co-owning property – consider the future to protect your share of ownership

Money and Home

Money and HomeNo one can predict the future, but when it comes to jointly purchasing a property it is best to consider what you would want to happen to your property should your co-ownership come to an end.

Where two or more people purchase a property together they must decide whether to hold the property as ‘joint tenants’ or as ‘tenants in common’. These terms often confuse potential buyers since – despite the terminology – they have nothing to do with a landlord and tenant, and apply to both freehold and leasehold properties.

If the buyers choose to be joint tenants, they each own the whole of the property. This has two main effects. The first is that each co-owner is entitled to an equal share of the value of the property.

The second effect is that should one of the parties die, their interest in the property passes instantly and automatically to the other surviving joint tenant or tenants. This happens at the moment of death regardless of the wishes of the deceased or any Will they may have.

One interesting consequence of this which buyers often do not consider is that should they come to sell the house – particularly if the sale is as a result of a relationship breakdown or other acrimonious reason – each joint tenant can claim an equal share of the sale proceeds even though they may not have contributed an equal amount to the purchase of the property or to the mortgage payments.

Neither should the parties think that just because they are joint tenants, there is no need for them to have a Will. If all of the joint tenants should die, for example, the property would pass under intestacy law and not necessarily to the person intended by the final survivor (e.g. a particular child with a specific need).

In contrast, if the buyers choose to be tenants in common, they each own a distinct share in the property. When a tenant in common dies, his share passes under the terms of his Will or, if he does not have a Will, then under the intestacy law in force at the point of his death.

This is not without its complexities. On the death of a tenant in common, a third party could then inherit a share of the property and could apply to Court to require the property to be sold in order to release the value of his share. This may not be what the remaining tenant in common would wish.

Tenants in common is typically preferred where contributions to the purchase price are unequal, or perhaps even where a parent or other family member has provided financial assistance with the intention that specific sums or shares are to be repaid when the property is sold. It is also favoured where one party wishes his share in the property to pass to children of a previous marriage, rather than automatically to the other co-owner.

A document setting out the shares agreed between the parties – known as a Declaration of Trust – is strongly recommended for tenants in common to avoid any disputes about what was agreed at the point of purchase. It is important for co-owners to bear in mind that circumstances can change, however, and the Declaration should be reviewed regularly to check that it still reflects what has been agreed in practice.

On a sale of the property, courts do have jurisdiction where the sale is as a result of a divorce, but their powers are much more limited where a sale is by unmarried cohabitees.

The best advice is to make decisions about how you wish to hold the property before you commit to buy. It is important to be realistic about what each co-owner intends for their investment, even though it can be difficult to consider potential problems during happier times.

By the Cambridge Residential Conveyancing Team at Barr Ellison Solicitors, telephone 01223 417200.

Disclaimer: While we do all that is possible in terms of ensuring its accuracy, this blog contains general information only. Nothing in these pages constitutes legal advice. You need to consult a suitably qualified lawyer from the firm on any specific legal problem or matter.

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