With house prices continuing to climb, more and more people are banding together to be able to get onto the first rung of the property ladder, often with a gift from parents. If you (or your child) are intending to buy a house or flat jointly, be it with a spouse, partner, family member or friend, you have to agree how you will own the property. An ill-thought decision could prove very expensive in the future.
You will need to agree how to hold the property and, potentially in what proportions the property should be owned in,
The potential consequences of not dealing with how to hold the property before you complete on a purchase could include:-
- the possibility of dispute;
- becoming involved in litigation and incurring substantial legal fees; and/or
- the possibility that a court may divide the property between you in a way that is different from what you intended.
In legal terms, where a property is purchased in joint names, the owners will hold the property as either Joint Tenants or Tenants in Common. The word ‘Tenants’, as used here, can be a little confusing as it has nothing to do with landlords or tenancies.
If you hold the property as Joint Tenants, you will each have an undivided share in the property. This means that all the co-owners will all own the whole together, rather than each having a distinct share of the property.
In the event of a dispute, it is presumed that each co-owner would receive an equal share in the net sale proceeds of the property, and it is extremely difficult to go behind that presumption.
If one of the co-owners dies, their interest in the property does not form part of their estate to be dealt with under the terms of their will. Instead, it passes to the surviving co-owner(s) who will then be free to deal with it as they choose. Holding a property as Joint Tenants is often preferred for people who are married or in a civil partnership where they would want their spouse/civil partner to inherit their share of the property. A joint tenancy is less likely to be appropriate for unmarried people or friends.
Tenants in Common
Unless expressly stated, the shares held by Tenants in Common will be presumed to be equal. If you are making unequal financial contributions, it is likely to be appropriate to own the property in percentage shares according to your respective contributions. This can be accomplished by a simple statement in the deed of transfer or in a separate declaration of trust if the arrangements are a little more complicated, e.g., one party is putting in capital and the other is contributing by taking out a mortgage and making the mortgage payments.
If at some point in the future you incur significant expenditure, e.g., by building an extension, and the co-owners make different financial contributions, you may want to enter into a new deed to change the percentages in which a property is owned.
Each co-owner will be able to deal with their share of the property in their will and their share will then pass according to the terms of their will, not automatically to the surviving co-owner(s).
The risks in not agreeing how a property is to be held may have very significant consequences. For example, an unmarried couple setting up home together may think it is appropriate to own a property as joint tenants, but that decision may be regretted if the relationship breaks down and you end up having to account to your partner for half the sale proceeds even though you put in the lion’s share of the capital to buy your home.
It should be noted that for married people, whatever you have agreed may be changed by a court in the event of a divorce or the dissolution of a civil partnership.
It is bad enough having to hand over money to a former co-owner who you feel did not make a contribution that merits what they are receiving, it is more galling for a parent who made a gift to their child to see that money end up in the hands of someone else.
If you are affected by similar issues or would like to have a related discussion in confidence, please call me Charlie Davidson; Associate Solicitor in the Residential Property team on 020 7091 2716 or email firstname.lastname@example.org
The above is accurate as at 14 September 2021. The information above may be subject to change during these ever-changing times.
The content of this note should not be considered legal advice and each matter should be considered on a case-by-case basis.