Buying in joint names

When you buy a property with someone else you need to use some WIT (What-If Thinking). Among the top questions should be "what if we fall out?" and "what if one of us dies?"

You are probably clear about what should happen. You probably think that is what will happen. But unless you get it spelled out when you buy the property, there could be an unpleasant surprise later. For example:

You put in most of the money, and you expected to get it back when the relationship broke down so quickly but the transfer deed says you are equal owners. It looks as if your ex-partner is going to walk off with half your capital.

You want to leave your property to your children from your previous relationship but you don't want your present partner to be homeless on your death. If the transfer is worded one way your present partner keeps the property and your children get nothing. If it is worded another way your children may be able to force a sale of the property leaving your partner homeless. Getting the arrangements right will involve making a will as well as getting the right wording in the property transfer document.

You may think that if all else fails, the courts will give you a fair solution. That is right only up to a point. The court has power to distribute property fairly in connection with your divorce or dissolution of civil partnership. If you are not married or civil partners the court cannot re-distribute property: it can only decide who owns what. If your property transfer document says you are equal owners that is what the court has to apply, even if it seems unfair. The court can look for a fairer outcome if the transfer document is less specific. However, one lesson the courts keep repeating is that conveyancers need to make sure at the outset that their clients are fully advised about joint ownership and specifically check what arrangements the clients require.

When we deal with your conveyancing at Fawcett & Pattni we will always explain the different types of joint ownership and make sure that the documents are worded in the way that meets your requirements.

There are two ways of owning property together. One is called "joint tenancy" and the other is called "tenancy in common". This may seem confusing because there is so little difference in the ordinary meaning of the words and it seems odd to refer to property ownership as a "tenancy". However that is the legal jargon, and we seem to be stuck with it.

If you are "Joint tenants" you are equal owners. If you die, your interest in the property does not pass to your heirs in your will or under the intestacy rules. The other joint tenants simply carry on as owners without you and the last one becomes sole owner of the property. Joint tenants are not regarded as owning "shares" in the property. They all have concurrent ownership of the whole of the property.

"Tenants in common" means you each have an undivided share in the property. It is called an "undivided share" because it is a share in the whole: not a case of "this is my bit here and that's yours there". Tenants in common are not necessarily equal owners. You can agree the shares between you in whatever proportions you wish. Your share will pass to your heirs if you die. Whoever your share passes to will take your place as Tenant in Common with the other(s).

These differences are of crucial importance. The following examples illustrate which form of ownership you are likely to choose in different situations.

You are a couple in a long term relationship sharing finances equally. You both want to be sure that when one of you dies the other will automatically get sole ownership of the property without any legal formalities or hassle. You will choose to own as joint tenants. The surviving partner will automatically become the sole owner and only needs to send a copy of the death certificate to the Land Registry to have the register changed to show this.

You are married or civil partners with combined assets above the Inheritance Tax threshold. You will want to consider tax planning through your will. This could mean that you should hold the property as tenants in common so that your interest in it will pass under your will.

You are buying with friends on a "buy to share" basis. You will definitely not want to be joint tenants. You need to be tenants in common so that you can each pass on your share of the property to your own heirs and so that each person can have a share in the property in proportion to their contribution.

"Joint Tenants" is the most common form of ownership for owner occupied residential property but it is only of use if you are happy with the "survivor takes all" principle.

Any of the joint tenants can change the ownership to "Tenants in Common" by giving the other(s) "Notice of Severance of Joint Tenancy" and notifying the Land Registry of the change. In a broken relationship you are unlikely to be happy for your ex-partner to get everything if you fall under the proverbial bus. You need to serve notice of severance and also make a will.

Although you can change from "Joint Tenants" to "Tenants in Common" without agreement from the other owner(s) you can't change the fact that you have equal shares without agreement. At a stage when you can hardly agree about anything, it is unlikely that your ex-partner will agree that you made the larger contribution and should have the larger share.

The court's powers to transfer property in divorce or dissolution of civil partnership proceedings will allow contributions and needs and the needs of any children to be allowed for in deciding what is to be done about the property.

In the case of unmarried co-owners the court has powers under Trusts of Land and Appointment of Trustees Act 1996 (TLATA). These do not include changing declared shares of ownership. The court can help with decisions about whether the property is to be sold and if it is to be kept, who is to live in it. However these powers are limited compared with those available in divorce proceedings. It means that unmarried people need more WIT when buying property together, especially if you are not making equal financial contributions. You may want to have a fairly detailed trust document specifying your respective shares, whether these will change over time, what is to happen to the property if you split up and so on.

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