Anna Lewis
- Legal Director
- Residential Property
Co-owning property with confidence
When advising clients on a property purchase, there can be a lot of excitement and different practical elements to manage; it is our job to advise co-owners on the different ownership options available to them to ensure they achieve their objectives.
People often think co-ownership of property relates only to married couples, civil partners or common law partners. However, there are other situations where a property may be held jointly, for example, business partners, family members, friends and trustees.
In England and Wales, when you own a property with another person, you are deemed by law to hold it “on trust” and therefore when acquiring a property with another person, your solicitor will need to check if you wish to hold the equity in the property as “joint tenants” or “tenants in common”. In this article we explain the difference between the two, and the importance of ensuring that your intentions are noted correctly in the unfortunate event of the relationship breaking down or death. Discussing such life events can be uncomfortable, however, it is crucial to have these conversations early on to ensure that your individual shares of the property are preserved according to your wishes.
In order to explain these concepts, we need to first explain the difference between the legal and equitable interests in a property. A legal interest in property gives the owner a right of control over the property. The legal owners are registered at the Land Registry as the owners (or title holders) of the property. Having an equitable (or “beneficial”) interest in a propertygives that person the right to their share of the equity (e.g. the proceeds of sale) and also the right to acquire legal title to the property, provided it is an absolute interest.
Joint tenants
If the equity in a property is owned as “joint tenants”, each person has an indivisible share in the property and each are equally entitled to the whole of the equitable interest in the property (e.g. the proceeds of sale). On the death of one party, their legal and equitable share of the property automatically passes to the surviving co-owner(s), irrespective of any Will they have in place.
Tenants in common
If the equity in a property is owned as “tenants in common”, the legal interest remains held as joint tenants, but the equitable interest can be held in equal or unequal shares. On the death of a co-owner, whilst the legal title passes to the surviving co-owner(s), the equitable share passes to the deceased co-owner’s estate and whoever is entitled under the terms of their Will, or if there is no Will, under the intestacy rules (for example, the co-owner’s children).
What are the key differences between joint tenants and tenants in common?
| Joint tenants | Tenants in common |
| On death of a co-owner, their equity in the property passes to the survivor automatically. No grant of probate is required. | On death of a co-owner, their equity in the property passes to whoever is entitled in their Will (or the intestacy rules). A grant of probate is required. |
| Equity is shared equally. | Equity can be owned in specified shares, e.g. 70%/ 30%. This can be used to reflect unequal contributions to the purchase price. |
| A Will is not needed for the property (although it is sensible to ensure you have one for other assets). | Strongly advisable to have a Will. |
| Shared responsibility for maintenance and mortgage payments (if any). | Responsibility for maintenance and mortgage payments could be equal or unequal to correspond with the parties’ share of the equity. If unequal, a written agreement on this would be highly advisable. If liability for the mortgage is unequal, the lender’s consent may be required on purchase and remortgage. |
| Less potential for complications when selling or mortgaging the property as no separate shares of equity. | Selling or mortgaging the property can be more complex particularly if a co-owner has died. |
| Not possible to mortgage or secure a loan against an individual share of the equity, although some lenders may be prepared to discuss options where the borrower/owner is different. | Potential to mortgage or secure a loan against individual share of the equity. |
| Not possible to carry out any inheritance tax (“IHT“) planning with the equity in the property. | Possible to carry out IHT planning with the co-owner’s individual shares in the equity by making use of IHT exemptions/ reliefs in their Will. |
Declaration of trust
A declaration of trust is important where the equity in the property is held as tenants in common with each co-owner having an unequal share, or where the co-owners are holding the equity for persons other than themselves (e.g. for children).
A declaration of trust is a legally binding document that sets out each co-owner’s percentage share of the equity. It can also be used to set out ownership rights and financial arrangements relating to the property, which can prevent any misunderstandings and future disputes about the shares in the property and any division of proceeds of sale. Without a written declaration of trust, if the parties disagreed on the value of their shares, the involvement of the court may be needed which can be time-consuming as well as costly both financially and emotionally.
If it is important to the parties to also record other agreed terms such as how outgoings are to be split, maintenance costs borne, and what happens to the property on relationship breakdown, a separate “cohabitation agreement” can also be considered.
A declaration of trust and cohabitation agreement may be of particular benefit to co-owners who are not married or in a civil partnership.
It is also highly advisable where someone who is not named on the legal title has an equitable interest in the property, such as a family member or partner who has contributed toward the purchase price, or where parents are holding the equity (or part of it) for their children.
If there is a mortgage on the property, the legal owners would need to disclose the declaration of trust to the lender.
It is important to obtain legal advice before entering into a declaration of trust, to check that there are no adverse tax implications.
Can I change my mind once the property has been registered at the Land Registry?
The simple answer is yes. People’s circumstances change, and it is important to consult a solicitor when your circumstances do change to check whether your co-ownership option is still the right choice for you. A joint tenancy can be converted into a tenancy in common, and vice versa. This usually involves the preparation of a short document along with a Land Registry application.
Which co-ownership option is right for me?
The right option for you will depend on your personal preferences and, where relevant, your estate and tax planning objectives.
How we can help
If you would like to understand more about your co-ownership options or you would like to explore modifying your current arrangement, please contact Anna Lewis, Chloe Devall-Douglas or another member of our expert Residential Property team. We can offer advice tailored to your situation and help you to plan for the future. As we are a full service firm, we can liaise with our Private Client team to provide tax planning advice, and/or any declaration of trust or Will needed, and with our Family team in connection with any cohabitation agreement required.
This article is for general information only and does not seek to give legal advice or to be an exhaustive statement of the law. Specific advice should always be sought for individual cases.
Meet the team:
Chloe Devall-Douglas
- Senior Associate
- Residential Property
