Joint Ownership
Co-ownership of Your Home: Your Options
Whenever two or more people are co-owners of a property they must decide at the outset which form of co-ownership they require to determine their legal relationship with one another. There are two forms of co-ownership (known as “Joint Tenants” and “Tenants in Common”) which are summarised below.
Joint Tenants
Key Features:
- “Equal shares” are presumed
- Automatic transfer to the surviving co-owner(s) on death (also known as “survivorship”)
- Operates independently of a Will
If co-owners sell a property owned as joint tenants, it is assumed as a matter of law that each co-owner will receive an equal share of the net proceeds of sale. Nevertheless, in legal terms all co-owners collectively own the whole of the equity in the property. No one actually owns an individual share. This is why, if one co-owner dies, the deceased co-owner’s “share” passes automatically to the remaining co-owners.
For example, if three co-owners are “joint tenants” of a property and one of those three owners should die, the property automatically passes into the names of the two “surviving” co-owners (regardless of the provisions in the deceased co-owner’s Will). The same follows if the second co-owner should die. This is known as the right of “survivorship” and it is only relevant if you own a property as joint tenants. In view of this, it is not possible for a joint tenant co-owner to leave his “share” in a property to anyone in his Will. The transfer of ownership to the surviving co-owner(s) is automatic and takes place independently of any Will. Any clause in a Will regarding the inheritance of a share in the property will be void (although the rest of the Will remains valid).
What happens if co-owners contribute unequally to the purchase price and wish to be joint tenants?
Given the presumption of “equal shares”, the co-owners would have to take further steps if they wish to ensure that there would be an unequal division of the equity in the event of a dispute or the relationship breaking down. In these circumstances detailed legal advice must be taken before making any decision about the form of co-ownership.
If this applies to you, be prepared to answer the following questions:
- If you contribute unequally, do you want to protect the person who has paid the most money?
- If one of you dies, should the share automatically pass to the survivor?
- If you fall out, will one of you buy out the other person’s share, how much should that share be and what should happen if you disagree about who should continue to live in the property?
Tenants in Common
Key Features:
- Shares can be specified in any proportion
- No automatic transfer on death
- A share can be given to a third party in a Will
- Flexibility to suit individual circumstances
Tenants in common own specified shares in the property which may, but need not necessarily, be equal. Co-owners choosing this form of ownership will be able to specify what the shares should be. They might determine this by reference to each person’s financial contribution.
Example 1
Two friends purchase a property for £200,000. They obtain a mortgage loan of £150,000 with the intention they will contribute equally to the monthly repayments. One person uses his savings to pay the remaining £50,000 deposit to buy the property.
The co-owners may decide to specify shares of 62.5% and 37.5% in accordance with each person’s contribution. A Declaration of Trust would be prepared to reflect this arrangement.
Example 2
A father and son purchase a property for £200,000. The father pays a 20% deposit (£40,000) and they obtain a joint mortgage for the balance of the price. It is intended that the son alone will pay the monthly mortgage repayments. The father wishes to “gift” £20,000 to his son now, and would want to receive £20,000 back when the son sells the property.
The shares of each co-owner cannot be calculated as exact proportions or percentages in these circumstances. The co-owners may simply opt to be Tenants in Common and arrange a Declaration of Trust, which would confirm that the father will receive the first £20,000 from the equity following a sale, with the remainder being paid to the son.
A share in a property owned by tenants in common does not automatically pass to the surviving owner(s) if one owner dies. This means that a co-owner has the option to leave his or her share to a completely independent third party in a Will. Consequently a Will must be made to ensure that a share in a property passes in accordance with the co-owner’s wishes when he or she dies.
Specialist advice should be taken from our Wills & Probate Department if you have questions about making a Will or what might happen to your assets and belongings if you fail to make a Will detailing your wishes.
Common Examples
Examples for Joint Tenants
Married couples and civil partners will typically own the family home as joint tenants. If anything should happen to one of them, they would generally choose to leave everything they own to their spouse or civil partner in their Will anyway. An automatic transfer on death is desirable under these circumstances.
This form of ownership might also be appropriate for some unmarried couples for the same reason, particularly if there are children of the relationship.
This is probably the most popular form of co-ownership, largely because the right of survivorship ensures that the surviving co-owner will have immediate control over what happens to the family home, without waiting for a Will to be administered and any probate arrangements to be resolved.
Although it less common to do so, joint tenants can still arrange a Declaration of Trust to ensure an unequal division of the finances should the relationship break down (whilst enjoying the benefit of the right of survivorship in the meantime). Whether or not this is an appropriate option will depend on your individual circumstances. You should ask a member of the Conveyancing Department for more information about this.
Examples for Tenants in Common
All couples (whether married or not) might choose this form of ownership if the individuals are particularly wealthy in their own right. For example, a co-owner may wish to leave his or her share in a property to someone else in the family (usually children) as this might result in inheritance tax savings on the death of the second joint owner. This form of ownership is often used as a mechanism for inheritance tax planning.
This form of ownership is particularly useful along side a Declaration of Trust and a Will where:
- co-owners contributed unequally to the deposit when the property was purchased
- one co-owner is to be solely responsible for the mortgage payments
- there is some other reason to identify each co-owner’s input to the property
- the co-owners do not want their respective shares in the property to automatically pass to the survivor(s) if one of them dies. For example, this might be the case for friends, business partners, or unmarried couples who are co-owners
- parents to assist a child financially when he or she buys a home for the first time jointly with a third party
- an older couple is concerned about nursing home fees and decides to make a trust arrangement that is designed to minimise the risk of responsibility for nursing home fees if they go into long-term care in the future.
A co-owner with children from a previous relationship who has re-married or is co-habiting with a new partner could use this form of ownership to ensure that his or her share in the property is ultimately secured for those children. The deceased’s Will might provide for the surviving co-owner to have a right of occupation until sale or until death, with the share then passing to the children after this.
Business partners will generally use this form of ownership and will use a Declaration of Trust to regulate their dealings with the property. For example, the Declaration could set out the respective shares; each co-owner’s contributions to running costs, mortgage payments and improvements and also contain detailed provisions about what would happen if one person wanted to sell but the other co-owner(s) did not.
This is possibly the least used, but most flexible, form of co-ownership. A Declaration of Trust and a Will can be prepared alongside this form of co-ownership to achieve almost any outcome that is required by the co-owners.
Decided you no longer want to own the property as Joint Tenants?
Circumstances change over time and so co-owners who originally acquired as joint tenants may decide later that they wish to define their shares and become tenants in common. It is possible to “sever” a joint tenancy and this might be done for various reasons including:
- Divorce, relationship breakdown or a dispute between co-owners
- Where it has been recommended by your solicitor or financial advisor for financial or practical reasons (e.g. to save inheritance tax or to protect the equity in the family home from the burden of nursing home fees)
If you are a joint tenant contemplating a change to the form of your co-ownership, please contact us and ask to speak to a member of our Wills & Probate Department or (in the event of divorce or separation) our Family Department for specialist advice.
Need more advice on Co-Ownership issues?
The solicitors and staff in our Conveyancing Department can give you general information and advice about co-ownership matters and will be happy to discuss your queries.
Where your situation is more complex, and you have queries involving unequal shares and/or queries about the distribution of your share on death, we can refer you to a member of our Wills & Probate Department who can supply specialist advice about trusts and co-ownership matters. The personnel in this department can guide you through your options, make recommendations concerning the form of ownership you should choose and confirm whether it is appropriate for a Declaration of Trust or a Will to be prepared to reflect your requirements.
Please note that the contents of this information sheet are a starting point only and are not a substitute for full professional legal advice tailored to your individual circumstances.
Contact us on one of the following numbers for further information:-
Ingleby Barwick 01642 754050
Coulby Newham 01642 233980
Middlesbrough 01642 230700
