In a world where the average house price increased by an additional £24,000 from October 2020 to October 2021, purchasing a property with another individual is certainly a financially sensible idea. However, whilst the rising cost of the housing market is constant and clear, the concept of co-ownership and how co-owners should hold the beneficial title (the value that the property represents) is certainly not.
Although “common sense makes good law”, common sense alone cannot prevail where two buyers are investing such a huge sum of money on an often life-changing purchase. It is essential that co-owners understand and are made aware of the implications of holding the beneficial title to a property in different ways.
If co-owners are contributing different shares to the purchase of the property e.g., a husband contributes £200,000 and a wife contributes £300,000; then a common question arises: how will the parties hold the beneficial interest in the property? Whilst the parties can identify how they intend to hold the property in section 11, “Declaration of Trust”, of the Transfer Deed (TR1/TP1), this does not provide the buyers with an understanding of why they should hold it in one way and not the other.
Once you read section 11 of the Transfer Deed, you will realise that an explanation regarding the meaning of the legal terms “Joint Tenants” and “Tenants in Common”, is crucial in correctly implementing the division of the shares of the property. It is equally essential to understand the benefits and burdens of holding the shares of the property in the two different formats.
Joint Tenants
Traditionally, unequal contributions would not displace how the parties intended to hold the property. This attitude reflects the position of joint tenants. The key characteristic of such is that the property is held in equal shares. This position is simple, cost-effective, and demonstrates a clear 50:50 share of the property. It is common for married partners to use this structure of ownership.
This system of ownership often reduces legal fees as there is no need for additional documentation to demonstrate the shares of the property; quite simply, they are held equally. Furthermore, the most significant advantage of joint tenancy is the “right to survivorship”. Should one of the joint tenants die, then their share is automatically passed onto the other joint tenant. This helps to avoid probate proceedings and makes the position of ownership clear and obvious to all parties involved.
Whilst the simplicity of joint tenancy is a welcomed relief to the legal industry, it is not without its drawbacks. The right to survivorship can sometimes infringe the intentions of the joint tenants, as the right overrides any Will. Further, should the joint tenant’s relationship break down with one another, then neither party is entitled to sell the property without the consent of the other. Equally, should one party have contributed to 90% of the purchase price, the principal of joint tenancy supersedes this proportioning and both parties are still entitled to equal shares.
Tenants in Common
Alternatively, it is important to consider the position of tenants in common. This position of ownership allows the parties to hold a distinct proportion of the property. Should one co-owner contribute more than the other, then as tenants in common, these shares are reflected. Tenants in common should draw up a Deed of Trust on the basis that this legally sets out the beneficial ownership of the property. It is essential in providing transparency of the beneficial shares. This is a common form of co-ownership for business partners and friends that purchase a property together.
This form of ownership is advantageous as where the property is sold, tenants in common receive a proportion that reflects exactly what they put in e.g., if they contributed 60% to the purchase, they would receive 60% of the sale proceeds. Furthermore, this also allows tenants in common to pass their share onto whoever they want via a Will. In addition, on the basis that just because one party has contributed a lesser proportion to the purchase of the property, this does not mean that they have fewer rights than the larger contributor. Both tenants in common will have equal rights to access the property.
However, a tenant in common is likely to require a Will to ensure that their share passes onto their desired party. Additionally, where a married couple purchases the property as tenants in common with unequal shares, and this can cause disputes.
So, what is best for me?
So, what is best for me?The final decision comes down to your individual circumstances. It is a simple matter of, do you want to hold the property equally or in distinct shares. The answer to this question will ultimately determine the position of ownership. Here at Elite Law, we are more than happy to discuss the advantages and disadvantages of joint ownership and tenants in common with you before proceeding. At the very start of any transaction, we will send you our Joint Ownership Property Form. This provides you with some in-depth information on purchasing the property as co-owners.
If you have any further questions regarding any of the information discussed in this article, then please do get in touch by calling 0800 086 2929, emailing info@elitelawsolicitors.co.uk or completing our Free Online Enquiry Form.
