Associate Pam Kamel, in our Residential Property team, explains.
If you buy a property with someone else, you will need to decide how the beneficial ownership should be held. The two options are joint tenants and tenants in common. Your choice affects what happens to the property if one owner dies and may also affect how the sale proceeds are divided.
What does owning as joint tenants mean?
As joint tenants, the co-owners have equal rights to the whole property rather than owning separate shares. If one owner dies, their interest passes automatically to the surviving joint owner or owners, and does not pass under their Will.
This option may suit co-owners who want the survivor to own the property automatically. However, it does not record unequal financial contributions and if the property is sold, the beneficial ownership is generally treated as equal.
What does owning as tenants in common mean?
Tenants in common hold separate beneficial shares in the property, and those shares can either be equal or unequal. For example, the ownership might reflect different contributions made to the deposit.
When a tenant in common dies, their share does not pass automatically to the other owner. It passes under the terms of their Will or, if there is no valid Will, under the intestacy rules. Each owner should therefore consider whether their Will needs to be made or updated.
When may a declaration of trust be helpful?
If the owners are contributing different amounts or want to record a more detailed agreement, a declaration of trust may be appropriate. It can set out the beneficial shares and explain how the sale proceeds should be divided. The document should reflect what the owners have agreed and be prepared before exchange where possible.
The right arrangement will depend on the contributions being made and what the owners want to happen in the future. Your solicitor can explain the effect of the proposed terms.
Can you change the type of ownership?
The way a property is held can be changed. Joint tenants may decide to hold as tenants in common, for example following separation. Tenants in common may decide to become joint tenants if their circumstances change.
The legal steps depend on the change being made and it is important to be aware that any update of the ownership arrangements may also prompt a review of each owner’s Will.
How should you decide?
Think about whether you want equal beneficial ownership and what should happen if one owner dies. If contributions are unequal, consider whether the shares should reflect this and whether a declaration of trust is needed. Taking advice at the start can help ensure that the legal documents reflect what you intend.
Next steps
There is no single option that is ‘right’ for every co-owner. The choice should reflect your financial arrangements and what you want to happen in the future. Your solicitor can record that decision as part of the purchase and advise whether a declaration of trust is appropriate.
For further information or legal advice, please contact law@blandy.co.uk or call 0118 951 6800.
This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.
