When two or more people purchase a property together, it is necessary to think about how you are going to hold the property. There are two options:
- Joint tenants
- Tenants in common
What is the difference between joint tenants and tenants in common?
If you hold the property as joint tenants, both of you will own the whole property and upon the death of either party, the property will automatically pass to the survivor. This means the property does not form part of your estate and cannot be gifted to anyone under your Will.
If you hold the property as tenants in common, you each have a share in the property and upon death, your share would pass under your Will meaning you can leave it to whoever you want. You should make a Will if you do not have one, otherwise your share in the property may not pass to who you think it would if you die intestate (without a Will).
When might tenants in common be more suitable than joint tenants?
- Couples who are not married;
- Couples where one party is putting more funds into the purchase;
- Relatives i.e. mother/father and children purchasing together;
- Transactions where one party is receiving a gift from a family member;
- Couples who are divorcing or separating.
If you are happy that your share in the property will automatically pass to the survivor upon death and perhaps, you would leave your share to them in your Will in any event, then joint tenants may be the most sensible option for you. >br>
If however, in the situations noted above, you want to ensure your specific funds are protected should you die or split up, then tenants in common in unequal shares would be the most suitable way forward.
What is a Declaration of Trust?
A Declaration of Trust is a legal document which in most cases would be agreed and entered into by all parties before the property is purchased. It sets out the details on which the property is held on trust between them. It can include details such as:
- how to split the sale proceeds by percentages or specific amounts which they receive before the rest is split between them;
- whether the mortgage and other costs are to be paid equally or not;
- what happens if one party wants to sell and the other does not;
- what happens if the parties split up.
Should we have a Declaration of Trust?
You can only have a Declaration of Trust if you hold the property as tenants in common, and you would normally only need one if the split of the sale proceeds if anything other than 50/50.
For example, Mr Jones and Miss Smith are purchasing a property together for £200,000. Mr Jones is putting in £50,000, Miss Smith is putting in £20,000 and the remainder will come from a joint mortgage. Both of them want to protect their initial deposits and therefore they should be advised to hold the property as tenants in common with a Declaration of Trust in place. This could set out that Mr Jones and Miss Smith receive their initial sums upon a sale, and then any remaining equity would be split 50/50.
Changing ownership in the future
You may purchase a property together and agree joint tenants is the most appropriate for you at that time. However if, for example your relationship breaks down, you may change you mind and not want your share to automatically pass to your spouse and instead pass via your Will to your children or other relative. You would then need to consider severing your joint tenancy to create a tenancy in common. You do not both need to agree to do this, if either party wishes to change from joint tenants to tenants in common, they should serve notice on the other of their intention. An application should then be made to the Land Registry to sever the tenancy and a restriction will then be added to the property title register to note the property is now to be held as tenants in common instead.
In the same way, if you purchase a property as a non-married couple holding as tenants in common, you may then get married and decide at that point that you would actually now like to hold as joint tenants then you can in the future change it to a joint tenancy by making an application to the Land Registry.
There is no right or wrong, however you should carefully consider which is the best option for you.
Article written by Carly McLean – Residential Property Paralegal
If you would like further advice please contact the Conveyancing department at Edmondson Hall Solicitors on 01638 560556.
