BUYING A HOUSE TOGETHER – JOINT TENANT AND TENANTS IN COMMON
OWNERSHIP RIGHTS – WHAT YOU SHOULD KNOW
When you buy a house together as a couple, it is a big step. Or it may be that a pair of friends decide they can have a more substantial property if they pool their resources. When the time comes to sell, and maybe move on separately, or if one of the couples passes away, what happens to their share of the property? Before signing on the dotted line, to make the purchase it is always best to understand the implications and ensure that the property, on the exit of either party and your position, with regard to where the sale monies go, is secure. Couples who are unmarried, do not have a civil partnership or Pre Nuptial agreements, (or even if they do), can ensure that their portion of the property is correctly and properly in their ownership. Thus any proceeds of the sale are undisputed. The two most commonly known ways to hold a property together are as a Joint Tenant or as Tenants in Common. The names sound similar but there are very significant differences between them.
WHO IS A JOINT TENANT?
Joint Tenant is most common way in which a married couple, or a couple who are in a long term relationship, own a house together, although it can be used in other circumstances. What does it actually mean to hold a house in as a Joint Tenant? Both people who own the house own it equally, perhaps most importantly though there is a right of survivorship. The practical meaning of this right is that if one of the couple passes away, the survivor automatically has the property ownership of the other passed to them and becomes the sole owner of the property.
When you buy a property, it is automatically assumed in law that this is the way you are buying it. So unless you make a different arrangement the property will be placed as if you are Joint Tenants and the right of survivorship will be automatic. If this is not what you want when you are making a property purchase you must be clear with your conveyancing solicitor and enter into a different arrangement.
WHAT IS A TENANCY IN COMMON?
This is a Tenancy which can reflect different shares of ownership in a property. A common example is where one party puts in 75% of the deposit but the other only 25%. An alternative to this can be where one party is paying all of the mortgages and they agree that when the property is sold 75% of the residual sale funds will belong to that person. The scenarios of different ownerships are many and varied and always best agreed before contemplating the property is purchased.
The basic difference between the two similar-sounding ways of ownership are that if you are in a Tenancy in Common there is no right of survivorship. Each owner can dispose of their share whenever and to whomever they please.
This type of tenancy would suit three friends who join together to buy a bigger property and this Tenancy in Common allows for each one of them to sell their share to the other two or anyone else for that matter. Alternatively, the whole property can be sold and each friend receives their share of the residual sale monies in line with their original investment. Alternatively, if you are a couple who have adult children from a previous relationship, and you would like your share to pass to them, this is the arrangement that may best suit you.
Although it is more common for two people to buy a property together you can, through a Tenancy in Common have up to four people as co-owners of a property. More than four and a Deed of Trust will be required.
DEED OF TRUST
In certain circumstances, when a Tenancy in Common is set up, it would be advisable for a Deed of Trust to be drawn up. Also known as a Declaration of Trust this document sets down in writing how the property was purchased. So, for example, who paid how much deposit and what should happen, from a financial standpoint if:
- The relationship breaks down and the property is sold;
- One person is unable to meet their financial obligations toward the mortgage payments, for example if they are made redundant or fall ill;
- If either party decides they wish to sell.
This document has legal standing and can protect each party’s financial contribution.
In the case of joint mortgages, the mortgage lender will be able to claim against both parties equally for payments. So even though there are two of you on the mortgage, if one person cannot pay their share the mortgage the mortgage company will be able to ask the other to pay the whole of the mortgage repayments.
If one person to a joint mortgage defaults and the other cannot keep up the whole payment it could also effect that persons credit a rating.
CHANGING A JOINT TENANCY INTO A TENANCY IN COMMON – WHAT YOU NEED TO KNOW
This change is known as ‘severing’ a joint tenancy. If all of the owners agree to the change, an SEV form needs to be filled in and filed with the HM Land Registry. There may also need to be supporting documents attached. This creates a ‘form A restriction’. Information such as address, which local authority the property is situated under, the details of all of the owners, plus any applicable fee needs to be sent with the form. The register then holds a note against the property which confirms that the property is held as a Tenancy in Common rather than as a Joint Tenancy. It prevents for example, in the case of a severed Joint Tenancy, on the death of one of the joint tenants, the surviving joint tenant selling the property on his own. This ensures that the share of the deceased Tenant in Common goes to whomever it is bequeathed.
However, sometimes not everyone will agree to this, say in a divorce or the break down of a relationship. In such circumstances, a Notice of Severance is served and the Land Registry will reflect this and the change of the Joint Tenancy to a Tenancy in Common.
In what can be a stressful time, it is imperative that if these circumstances arise you ensure that you update your will to reflect how you would wish your share of the property to be disposed of in the event of your death.
It is also probably worth noting, in respect of a divorce, a will that mentions a husband or wife these aspects of a will are invalidated. In the case of remarriage, a new will should be made as any existing will becomes invalid after the marriage has taken place.
If you are buying a property and would like to discuss the various options above, please feel free to contact us.