Joint ownership of freehold or leasehold property can be somewhat complicated under English law. This page will (we hope) tell you what you need to know.
It is only intended to cover the situation where the same people own the legal title to the property (ie: are registered at the Land Registry as the owners) and between them own all the beneficial interest in the property
If someone who is to be a legal owner will not have a beneficial interest in the property, different considerations apply. If someone who is not to be a legal owner of your property is to have beneficial rights in it, things get even more complicated.
The rest of this page assumes that all the legal owners will all be the beneficial owners with nobody else involved.
Two options: “tenants in common” or “joint tenants”
In those circumstances, when two, three or four people (English law does not allow the legal title to land to be held by more than four people) buy property together in England or Wales, there are two alternative ways they can hold it – as “joint tenants” or as “tenants in common”.
Though these legal terms include the word “tenant”, this simply means owner in this contxt – it is based on the French “tenir”, which means “hold”. It applies equally to freehold and leasehold properties and does not mean you only have a “tenancy” of the property.
The main difference between joint tenants and tenants in common is that tenants in common may leave their respective shares in the property by their Wills to someone other than their co-owner(s) when they die; in the absence of a Will the share will pass to a member of the deceased owner’s family in accordance with the rules of intestacy, so it is particularly important to make a Will if you are buying a property as tenants in common – especially if your co-owner is not your spouse or civil partner (but also even if they are).
Joint tenants
Under this arrangement, all parties together own the whole of the property as one legal person and are each entitled to an equal, undivided right in the property and its proceeds of sale – and are equally responsible for any liabilities arising out of its ownership.
If the property is sold, the transfer will have to be signed by all owners in order to be valid. The sale money can be paid to all of you as one sum, or divided as you may all jointly request. If one of you dies, the remaining owner(s) automatically becomes the owner(s) of the property entitled to deal with it as they please and if sold, will receive all of the sale money.
This is the most common way in which property is held by married couples and those who are in a long-standing stable relationship and where both/all parties are to contribute, whether financially or otherwise, to the cost and expense either of buying the property or of maintaining and repairing it and/or paying a contribution towards the mortgage repayments.
Property held in this way can only be sold by consent of all the joint tenants. If there is a change in circumstances which results in one joint tenant wishing to sell and the other(s) refuse(s) to do so, it will be necessary, at that stage, to “sever” the joint tenancy in order to convert to a tenancy in common; then the person wishing to sell can, ultimately, compel his/her co-owner(s) to join in the sale.
Tenants in common
Under this arrangement, all parties will still be legal owners of the property and all parties will still need to sign the sale documents before the property can be sold. However, instead of you all owning the whole of the property, the value of the property will be divided between you – not necessarily equally, though that is the normal legal assumption in the absence of specific agreement or special circumstances.
You may agree to have the property in equal shares, even if one of you is paying more than the other(s) towards the running or purchase of the property. Alternatively, if you are not making equal contributions to the property, you can decide to own the property in unequal shares – for example, where one person has paid 75% of the purchase price and the other just 25%, they may agree that their respective shareholding in the property will reflect that imbalance. In that case, if the property is sold, the sale money will be divided in the already-agreed shares: 75:25. If you do not specify the shares in which you hold the property, it is normally assumed that it is shared equally, though this presumption can be rebutted by clear evidence to the contrary.
I am informed by accountants that, for tax planning, it is sometimes appropriate for the couple to own the capital value in a property in one proportion and be entitled to the income in a different proportion.
On the death of any of you, if the property is sold, the proceeds will be shared in the agreed proportions between the owners, including the estate of the deceased party; if the property is not sold, the deceased’s estate (or beneficiaries under his or her Will) will retain the deceased’s share in the property.
If you are considering holding the property in this way, be sure to take into account the value of the mortgage repayments and other outgoings in respect of the property. If you intend that these will be paid equally, you might consider that it will be fairer for these to be taken into account when assessing the entitlement to the share in any profit which may be made, or loss incurred, when the property comes to be sold. The courts have power to override any arrangement where it appears to them that it does not fairly reflect the amount contributed by either party, but they will take strong account of any intentions you express when buying the property.
A tenancy in common is nearly always the right choice for business and investment ventures. It is often seen as being the right choice for people who are embarking upon a new relationship together or where either party wants to ensure that children from a previous relationship should inherit their share in the property.
General advice
It is common for married couples and civil partnerships to hold as joint tenants. However, there are exceptions; for instance –
* Holding the property as tenants in common enables various tax-planning measures to be taken, especially by provisions in Wills, so may well be the better way, even for married couples / civil partnerships
* There are occasions when it is prudent for only one of a married couple to own a property, either for tax planning or where one spouse may face unlimited personal liability – for example is a partner in a business – or has given personal guarantees for the liabilities of a limited company.
* It may also be advisable to use a tenancy in common where one party buys a property out of assets owned prior to marriage or commencement of the current relationship.
Where the parties are not married, it is almost always better to hold the property as tenants in common – either equally or in the shares that they agree (which normally relates to their contribution to the property price).
If you agree to hold as tenants in common in unequal shares, it is important that you have a separate trust deed specifying the respective shares in the property – otherwise, the law will normally assume that the shares are equal. Such a deed can also be used to specify the parties’ other financial responsibilities relating to the property – for example, if mortgage repayments are to be borne in specific proportions.
If any tenant in common were to die, their share in the property will form part of their estate – it will not pass automatically to their co-owner(s). Therefore, if you agree to hold as tenants in common, you should also make a Will, or review your existing Will. Again, we can help with this
The decision you make need not be final, in that you can change your mind after completion of the purchase if circumstances change and all owners agree to the change or the change is from joint tenants to tenants in common in equal shares.
As always, we are happy to offer further advice if you want.
Nelsons – Bell House, Bells Lane, Tenterden, Kent TN30 6ES – 01580 767100
An update: can a joint owner mortgage his or her share?
Another update: the Law Society’s practice note on the subject