The majority of people purchase their property with another person. When doing this there are a variety of methods that can be used to ensure that it is suitable for your circumstances.
What methods can be used when buying together?
When buying together co-owners can either be Joint Tenants or Tenants in Common.
Co-owners who are Joint Tenants have undivided shares in the property. This means that each co-owner is regarded as being jointly and equally entitled to the whole of the property, irrespective of their contributions towards the purchase price or mortgage payments.
Therefore, when one co-owner dies the property automatically passes to the remaining co-owner, who will become the sole-owner.
Tenants In Common
Tenants in Common have separate shares in the property. These are normally specified in the document transferring the property to them, or in a formal Trust Deed.
On the death of a co-owner, that co-owner's share in the property will form part of the assets in their estate. Therefore it will pass to the person named in their Will. This means the surviving co-owner may be forced to sell the house to pay the beneficiaries.
When is being Joint Tenants appropriate?
Holding as Joint Tenants has the advantage of being a very simple arrangement. In circumstances where the co-owners have contributed equally to the price and outgoings of the property and/or it is their priority that the survivor of them should become the sole owner of the property, it will be most appropriate to hold as Joint Tenants.
When is being Tenants in Common appropriate?
Separate shares in the property require protection
Where co-owners have both contributed to the purchase price of the property (perhaps unequally) and they wish to ensure that each receives the appropriate share of the proceeds of sale and thus a return on investment.
When it is appropriate for others to benefit from the share of a co-owner
In some circumstances, it is not appropriate for the share of a co-owner to pass automatically to the surviving co-owner on death, but to other specified beneficiaries eg. children of a previous marriage.
This may be especially relevant if the surviving co-owner is in a Council run care/nursing home and paying fees. The deceased's share of the property can then pass to children or other beneficiaries and not to the State.
Co-owners are not married
There are greater difficulties and costs in unmarried co-owners enforcing their rights than for married co-owners, because Divorce laws are much more helpful for married couples. Having a Declaration of Trust Deed will help in this situation.
Tax efficiency is to be maximised
For co-owners who have a large Estate, it may be appropriate to give their share in the property to persons other than the co-owners. If so, they will have to have a divided share in the property which can be gifted in this way.
What is a Declaration of Trust Deed?
If you hold the property as Tenants in Common it is very important that you also have a Declaration of Trust Deed. This sets out each co-owner’s responsibilities and entitlements.
Although each co-owner is theoretically entitled to enforce their right to obtain their share of the property this may need to be dealt with through the Court. It is very much easier to enforce these rights with a Declaration of Trust Deed. This could be needed in such situations as not agreeing the value of the property or who pays the mortgage if one co-owner leaves.
How is a Joint Tenancy severed?
Where co-owners presently hold the tenancy as Joint Tenants, one co-owner can very simply sever the Joint Tenancy so that the property is held as Tenants in Common simply be serving notice upon the other that the Joint Tenancy has been severed.
If circumstances arise in which this may be required, it is best to make the arrangements through a solicitor.
Why do I need a Will?
Where co-owners hold the property as Tenants in Common, it is very important that the co-owners have Wills, which specify what happens to their respective shares in the property upon death.
Failure to set out in a Will what happens to those shares can have unforeseen consequences since the property will not necessarily automatically pass to their co-owner.
If you need help or advice with buying or selling a property please contact our team of Property Lawyers now.