Joint ownership – what language is your conveyancer talking?
Maybe you have received a conveyancing quote, or your conveyancing solicitor has sent you their Welcome Pack and both use odd words and phrases. You might be forgiven for thinking they are speaking a different language. However, the legal work involved in house buying and selling does indeed use some strange words and phrases. Thankfully, many lawyers provide explanations of what to expect when reading title deeds.
Two well known, but equally mysterious phrases are ‘joint tenants’ and ‘tenants in common’.
Where two or more people are buying a property together they must decide of these two methods they wish to hold. So it is very important that they understand what they mean.
Naturally we hope that people will never "split up", however, unfortunately this does sometimes happen with resulting disputes as to who is entitled to what from the proceeds of the sale of the property.
It is very important to remember that when the property is sold all mortgages and charges have to be repaid in full, as will the estate agents and solicitors fees on the sale. Only the balance will be available for division between you.
Before you are committed to buying a property, you should agree on how you wish to hold the property. There are two options:
1. Joint tenants
This is where each of you has an equal interest in the property so that if one of you should die the survivor would automatically inherit the deceased’s share and thereafter own the whole property. This is irrespective of the fact that the deceased’s Will may direct their share elsewhere (i.e. your Will would be ignored). This is common for married couples.
Please note, even if you choose this method, either party can change it to the second option at a later stage by ‘severing’ the joint tenancy, and convert it into tenants in common. This could happen if your relationship was for example breaking down, and one party wanted to split off their share and ensure it did not pass to the other of you but went instead under their Will, perhaps to a third party.
2. Tenants in common
This is where each of you owns a precise and specified share of the property and it is then left to your Will to direct where it is to go. In this way, the survivor on death does not necessarily end up with the whole property. If this is your choice you must also decide:
(a) Whether to own the property in equal shares; or
(b) Whether to own the property in unequal shares to protect any owner who is putting more money into the purchase than the other(s).
In either (a) or (b), the making of a Will is crucial so as to direct what is to happen to your share on your death. We would also advise you to consider a cohabitation agreement to regulate your respective positions throughout the course of your relationship.
If you have children from another relationship then you should consult a specialist lawyer to discuss the options more fully, as your choice will affect inheritance by such children on your death.
Where a married couple and civil partners are purchasing property it can be more tax efficient to hold the property as tenants in common as this may enable you to take advantage of inheritance tax relief on your death which may not be available if you hold the property as joint tenants. In the course of making a Will and carrying out a tax planning exercise in the future you may therefore be advised to change your joint ownership to tenants in common.
If you do choose option 2(b) above, we recommend that the respective interests which you will hold in the property are the subject of a written declaration of trust wherein your rights are made clear. This document can include who is to contribute to the mortgage and what happens if one party wants to sell.