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Conveyancing Guide - Joint Ownership

You will be ‘joint owners’ and you will need to choose the most appropriate method of joint ownership to suit your circumstances. Your preference is requested in the Property Questionnaire sent with our initial letter. There are two methods of joint ownership:

The most common method. If one of the joint owners dies the property will automatically pass to the survivor.

If the property is owned by you and others as joint tenants, this has the following effect:

You will own the property in equal shares no matter how you have contributed to the purchase of the property or its improvement and maintenance. You will only be able to change the shares held in the property if you all agree.

If one of the joint owners dies, the property goes to the other (or others) automatically, as per the rule of survivorship. It does not matter what your will says, as the property will not form part of your estate.

This is a popular choice for couples, as they would normally want their surviving spouse or partner to have the property. 

If your personal circumstances change, perhaps as a result of relationship problems or inheritance tax planning, then it is possible to change the arrangement afterwards so that you each have a separate, equal share to pass under your will (i.e. to hold as tenants in common), as set out below.  As mentioned above though, if you wish to alter your shares in the property, this will require all owners to agree.

Please also bear in mind that on the death of a joint owner, the “survivorship” process is automatic and the survivor takes all – this means that if you do not want the surviving owner / owners to benefit from all of your interest in the property, or if you would like someone else other than the surviving owner / owners to benefit (perhaps a child from an earlier relationship) then you should consider making a different choice.

Tenancy in common – each joint owner has separate shares in the property (usually 50-50 but any permutation is possible). On the death of one joint owner the deceased’s share passes to his next of kin (if there is no will) or his beneficiaries under his will.

The other choice that you have is to buy the property as tenants in common in either equal or unequal shares.

With this type of joint ownership, you have an individual share in the property. This share forms part of your estate, so that when you die it will be dealt with as directed by your will or, if you do not have a will, your share will pass according to the rules of intestacy. Your share will not automatically pass to the surviving owner / owners as it would if you had been joint tenants.

People usually buy as tenants in common if they are business partners, so that their families would inherit their share, rather than their surviving business partner(s).

If inheritance tax is an issue, there can also be tax advantages in owning the property in this way. This is a specialist area and further advice should be obtained from our private client department.

Another point to consider is that an owner’s share does not have to be an equal one. For example, one party may have contributed a higher figure towards the purchase price so the percentage share could be agreed to reflect that, or one party may be contributing a higher amount to the mortgage repayments or home improvements, and the percentage share could also be agreed to reflect that.

Whatever is agreed, the arrangement must be documented and so we need to know what your preference is. You need to carefully consider factors such as:

  • How much are the parties contributing towards the initial purchase?
  • Who is paying the deposit, and in what shares?
  • Who will pay the mortgage and outgoings?
  • Are you planning any improvements to the property? If so, who will be paying for these?
  • What do you want to happen when the property is sold?
  • What happens if the owners’ relationship breaks down?

Sometimes the arrangements can get quite complicated and in these cases a declaration of trust is recommended. This deed sets out in detail what you have agreed, and should reduce the risk of a dispute in the future. If we are asked to prepare such a document, we would make a separate charge as this is not part of the standard conveyancing process. The charge varies depending on the individual case but we will agree a fixed price with you in advance.

Once your shares have been recorded, you cannot change those shares unless all of the other owners agree.

It sometimes happens that another party is providing money towards the purchase price. A typical example is a parent helping a child to buy his or her first house. In these cases, we can only act for and advise the buyer and can accept no responsibility on behalf of the other party in connection with any money that they may have contributed. This is because a number of recent cases have shown that there is a possible conflict of interest between you, and we would not be able to offer completely independent advice to all concerned. The following sorts of problems can arise:

  • Is it a loan or a gift? This must be agreed beforehand, as there is a big difference between the two!
  • What happens if the other party wants their money back?
  • Will interest be payable on the loan, if indeed it is a loan?
  • What happens if there is a sale and the money is not repaid?
  • Does the loan need to be secured against the property, if indeed it is a loan? And, if so, will this complicate the mortgage arrangements?

If anyone who is not a party to the transaction is contributing money towards the purchase, that person should take independent advice from another lawyer/ accountant before proceeding.

If you have any general queries arising from these notes, we are happy to advise you without making any extra charge.

If you are buying jointly and one person is making a financial contribution which is more than a co-purchaser, it is important to give careful consideration to how the property will be held between you upon completion. If you decide to hold the property as joint tenants (in equal shares) or tenants in common (in either equal or unequal shares) but one of you is contributing by way of deposit or cash payment towards the purchase price (which is more than the percentage share you will ultimately own upon completion), then you should be aware that you will effectively make a gift to your co-purchaser(s) as soon as the money arrives into our client account (which will be in your joint names).

For example, if you were buying for £100,000 and chose to hold the property between you on a 50:50 basis, but one of you had contributed in the sum of £60,000 (from a bank account in a sole name), then the other co-purchaser would effectively receive a gift of £10,000 (£60,000 - £50,000). Whilst this entirely normal/intended in most transactions (particularly with married couples), it is important that we highlight the legal and practical implications of this arrangement so that all clients can consider taking independent legal or financial advice on their intentions if they have any concerns. Please note that in view of our professional obligations to you both we are not permitted to advise you separately on this issue therefore all co-purchasing clients who have any concerns are recommended to take independent legal and/or financial advice before making any payments.

 

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