A regular enquiry that we receive relates to the co-ownership of property. This is an update to the options available.
When you purchase a property jointly with another person, there are two ways that you can own the property: as either 1) Joint Tenants or 2) Tenants in Common. It is important that you understand the difference between the two and that you decide which is most preferable for your circumstances.
The information in this blog is intended as guidance only and does not constitute specific legal advice. If you require specific legal advice in relation to your circumstances, please contact a member of the Private Client Team at Clarion.
- If co-owners purchase a property as Joint Tenants, the “right of survivorship” applies.
- On Death. The right of survivorship means that, upon the death of one co-owner, his or her share will automatically pass to the other co-owner and will not pass under the terms of any Will they may have previously made (or the intestacy rules if no valid Will is in place). If you are aware that your current Will(s) contain any trust provisions, we recommend you take separate advice, as it is possible that you may not wish to purchase the property as Joint Tenants.
- Equal shares. Ownership as Joint Tenants also assumes that you own the property in equal shares, even if you have contributed to the purchase in unequal shares.
Tenants in Common
- The “right of survivorship” does not apply to Tenants in Common.
- On Death. This means that upon the death of one co-owner, the deceased owner’s share would pass under the terms of his or her Will (or the provisions of intestacy, if he or she did not have a valid Will). If you are aware that your current Will(s) contain trust provisions, it is possible that you may have intended to co-own property as Tenants in Common. It is important that your Wills and the ownership of the property mirror each other in this regard.
- Unequal Shares. Buying a property as Tenants in Common also means that the co-owners take separate shares in the property, which can often be unequal shares. This is the more common method of owning a property, where the buyers are not married or where the contributions to the purchase price are unequal. If you intend to contribute to the purchase price or deposit in unequal shares, or intend to pay any mortgage in unequal shares, we recommend you prepare a Declaration of Trust. This document is useful in case of separation, as it will confirm the terms upon which you hold the property, the percentage shares of ownership and any additional matters that would not be visible from the title deeds.
- Inheritance tax and care fee planning. If you have concerns over inheritance tax or potential care fees in the future, we recommend you take specific advice from our Private Client Team, as co-owning your property as tenants in common may be preferred.
Changing the ownership of your property
Whilst both co-owners are alive, they can choose to change the way they own the property from Joint Tenants to Tenants in Common and vice versa. Just because you buy the property in one way does not mean it has to stay that way. Changing from Joint Tenants to Tenants in Common is quite common if advice is taken relating to inheritance tax, relationship breakdowns or care fee planning. In legal terms, changing from Joint Tenants to Tenants in Common is called “Severing the Joint Tenancy”.
Separation and divorce
As stated above, if co-owners are purchasing a property in unequal shares, or contributing to the deposit in unequal shares, then it is often advised that they purchase the property as Tenants in Common along with a detailed Declaration of Trust. Other methods of recording your agreement as to ownership of the property (to hopefully reduce the likelihood of arguments upon separation) is with a pre-nuptial agreement, if you intend to marry, or a post-nuptial agreement if you are already married. If there is no intention to marry at the present time, a cohabitation agreement is a third option.
If a relationship does break down and co-owners separate, this is an important time to check how you own the property together. If it becomes apparent that the property is owned as Joint Tenants and the co-owners, given the breakdown in the relationship, would not want the property to pass automatically to the surviving co-owner if they were to die, then the parties will often Sever the Joint Tenancy (as explained above). They would also prepare a new Will at the same time, saying who they would want to inherit their interest in the property. This would prevent the co-owner automatically inheriting their share of the property in the unfortunate situation that they were to die before the property had been sold.
Severing a Joint Tenancy in this way (i.e. changing from Joint Tenants to Tenants in Common) will not affect any final division of the shares of the property that may ultimately be agreed or ordered by the court. It is a “just in case” proviso, to determine what would happen on death, because death during a divorce or a cohabitation dispute is rare, although it can sadly happen.
If you would like to discuss the co-ownership of your property such as the question of Tenants In Common or Joint Tenants, making a Will, inheritance tax planning, care fee planning or a Declaration of Trust relating to your property, please do not hesitate to contact me or a member of the Private Client Team on 0113 336 3355 or firstname.lastname@example.org
Disclaimer: Anything posted on this blog is for general information only and is not intended to provide legal advice on any general or specific matter. Please refer to our terms and conditions for further information. Please contact the author of the blog if you would like to discuss the issues raised.