Buying a property with someone else – whether a spouse or friend – has been common practice for years. More recently, however, multiple owners are becoming more common as parents, friends and other relatives stump up the cash to help particularly first-time buyers on to the property ladder.
There are two different types of co-ownership that can be put in place when two or more people are buying together, and it’s essential that you decide up front what kind you want your solicitor to put in place for you and your co-owners.
Here we look at the two types and outline the differences between them.
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Joint Ownership or Joint Tenants
Joint Ownership – the legal term for joint ownership is Joint Tenants. Simply put, each joint owner owns the entirety of the property, so if one dies, his or her interest disappears so the surviving joint owner automatically owns the property outright.
Under joint ownership, neither can transfer their share to another person via a will, and if the property is sold while each is still living, the general rule is that each is entitled to an equal share of the net sale proceeds. This is only a general rule and may be challenged, for example, in divorce proceedings.
Most married couples and those in civil partnerships and long-term relationships are likely to be joint tenants, but this is not always the most straightforward or indeed financially advantageous co-ownership for some people.
Ownership in Common or Tenants in Common
The second option is known legally as Tenants in Common or, in layman’s terms, Ownership in Common. In practical terms, each joint owner owns a separate, distinct share – either equal amounts or unequal.
An individual who has Ownership in Common is free to leave his or her share to someone else in a will. Where that person dies without leaving a will (intestate), their share passes to their next of kin. To ensure their share goes exactly where they want it to, it’s crucial that an owner in common makes a will and keeps it up to date where necessary.
When the property in common ownership is sold while all owners are living, the net sales proceeds are split according to each shared percentage.
Becoming Tenants in Common is practical where either co-owner has a child or children from a previous relationship; the co-owners are an unmarried couple or are not in a civil partnership; unequal contributions are made by each co-owner to the mortgage, deposit, purchase price and maintenance; one co-owner does not want to their share to pass automatically to the surviving co-owner; business partners are buying together; or co-owners want to reduce potential inheritance tax on an estate.
A precise agreement is essential
When buying as Tenants in Common, you need to have a precise agreement drawn up that details each party’s share. This is usually in the form of a Declaration of Trust or Cohabitation Agreement. The document can be updated whenever there is any change in the co-owners’ circumstances.
Co-owners should each make a will that outlines what they want to happen to their share in the event of their death. And you should ask your solicitor to enter a restriction on the property’s title at the Land Registry that prevents the registration of a sale or mortgage unless a solicitor or conveyancer certifies the application was made by you.
When you buy with someone else with a mortgage, each of you is liable for the full amount owed on the mortgage, regardless of which percentage of the property you have.
You can convert a joint ownership into ownership in common so long as both parties agree. In some cases, each party might require separate legal advice. Talk to Homeward Legal’s expert sales team today on 0800 038 6699 for the best advice on which solicitor can lead you through this legal process.