Purchasing a Property in Joint Names

Introduction

When two or more people buy a property together, it is important that they fully understand the choice between the two methods of holding the property jointly, and the consequences of that choice. It is possible to choose between holding the property as “Joint Tenants” or as “Tenants in Common”. Both are technical legal phrases and have absolutely nothing to do with “tenants” in the sense of a tenant occupying a property owned by a landlord!

Joint Tenants

If you hold the property as Joint Tenants then:

Subject to certain exceptions such as divorce proceedings, the general rule is that the equity in the property (ie the value of the property less mortgages and sale costs) would belong to both of you equally in the event of a sale during your life time.

Most married couples, and many long term partners, hold properties as joint tenants as they are satisfied as to equal ownership and the fact that their share of the property, as a joint tenant, will automatically vest in the surviving spouse or partner.

If one of you dies, the equity of the deceased in the property passes automatically to the surviving joint tenant. This would be so even if the deceased had made a Will giving all of his or her equity in the property to someone else.

Apart from providing an official Death Certificate, no other documentation is needed to vest the entire property into the survivor’s name on the first death.

If you chose to own a property as joint tenants, either owner can at a later stage serve a simple formal written notice on the other requiring the ownership to be declared as Tenants in Common in equal shares (joint agreement is required if held in unequal shares).

Tenants in Common

If you hold the property as Tenants in Common then:

Each person’s share is notionally separate and on death the share passes to the person entitled under your Will, or under the Intestacy Rules if no Will exists. The share will not pass automatically to the other joint owner. Legal documentation will need to be completed to transfer the property share to the person entitled and a Grant of Probate or Letters of Administration, in the event that there is no Will, need to be obtained before the share in the property can be transferred. Since such Grants can take anything between 4-24 months or more, it is extremely important to ensure that you are satisfied with this form of ownership.

You can agree to hold your respective shares in the property in any proportion you want. For example, if the first owner contributes 80% and the other owner only 20%, then you are able to hold the property in those proportions. In such a case, any sale proceeds would be split 80:20. Furthermore, if the joint owners are to make materially different contributions to the payment of any mortgage or capital improvements, they may wish to provide that their respective shares in the property reflect these contributions.

It is possible to transfer or gift your share in the property to a third party without requiring the consent of your co-owner. However, you should always take legal advice before doing so.

The Tenants in Common option is also chosen by unrelated parties buying for investment, or other circumstances where it is simply unacceptable for the share of one owner to pass to the other on death.

There may also be reasons connected with Inheritance Tax Planning in deciding on this form of ownership.

Beware! If you chose to own the property as Tenants in Common, and you do want your co-owner to have your share on death, then you MUST make a Will to that effect, since otherwise the share in the property may go to another person under the Intestacy Rules, or some prior Will which has not been revoked by you.

Furthermore, if unequal proportions are agreed, Decimus Fearon normally recommend for additional documentation to be drawn up to protect each party’s interests and provide for legal framework of financing costs; capital improvements; method of sale if one party wishes to sell the property and release their share. It should be appreciated that the law provides for a joint owner to force the other owner to sell the property in the absence of any written agreement providing for contrary requirements.

If you chose to hold the property as Tenants in Common, then at a subsequent date, you can both agree for the property to be held as Joint Tenants, subject to legal documentation being signed off.

For further information contact Faiza Lone on fml@decimusfearon.com