Please note that this News item is not maintained, and reflects the law as at the date of publication or update.
If you buy a property with other people, for example, with your spouse or a business associate, then you will need to consider how to “hold” the property and what type of joint ownership is to apply.
The legal or official ownership will always be as joint tenants but the equity in the property (also referred to as the ‘beneficial ownership’) can be owned in one of two ways:
• Joint Tenants
• Tenants in Common
There are different legal consequences to both forms of beneficial ownership and they are particularly relevant when one of the owners dies or the relationship between them breaks down.
What are the differences in the types of ownership?
Joint Tenants
A joint tenancy is most commonly, but not exclusively, used by married couples or those in a civil partnership.
If property is held as joint tenants, then it is owned equally by the parties. It is irrelevant who contributes what to acquire the property.
On the death of one party, the property automatically passes to the surviving owner(s). The deceased’s share in the property is not governed by their will or intestacy rules.
This is likely to be welcome when the joint tenants remained on good terms at the point that one of them died.
It is possible to bring a joint tenancy to an end (to `sever’ it) at any point. If this happens, the beneficial owners will become tenants in common (see below).
Tenants in Common
If property is held as tenants in common, then it can be specified as being held jointly in 50-50 shares or in unequal shares.
If one of the owners passes away, the deceased owner’s share does not automatically pass to the survivor but will pass in accordance with the terms of their will, or intestacy laws if there is no will.
A tenancy in common is classically used by unmarried couples, where there may be children from earlier relationships or in cases where the property is held for investment purposes.
What are the benefits of the different forms of ownership?
There can be tax benefits to both methods of ownership and you should always seek advice tailored to your specific circumstances.
Aside from the death of an owner, consideration should also be given to the potential for relationship breakdown. At the beginning of a relationship, most partners do not expect that their relationship will fail but if it does a clear agreement from the outset about precisely who owns what will be of great help and ease any pressure concerning the split of the equity. If the parties contribute unequal equity to the purchase price, the benefit of tenants in common can protect an unequal contribution.
What to do
Specialist advice should be sought when first acquiring a property in relation to joint ownership. However, it is also advisable to keep this under review throughout ownership as circumstances in life may change.
If it is decided that you should purchase as tenants in common, it is advisable to specify exactly what your respective shares are. If you are going to own unequal beneficial shares, then we would strongly advise that a declaration of trust is put in place.
This declaration will set out the agreement and arrangements concerning the shares. The trust can also deal with other issues such as how and when the property may be sold in the future. It is also advisable in these circumstances for the parties to make or update wills.
Should you have any questions concerning how to own the beneficial interest in a property, our residential property and private client lawyers will be happy to provide advice.
