It is not just sensible to buy a property with someone else, it is smart and can save you a ton of money, time and effort in many cases. When it comes to property buying, two is often better than one.
This blog takes a wide-angle look at joint ownership or co-ownership of a property.
What exactly is joint ownership? What are its benefits?
What are some of the drawbacks to buying a property on a joint ownership basis?
What are the practical considerations to take into account and what are the pitfalls to watch out for?
1. Joint ownership of property
Joint ownership in a property context is where the property is owned by two or more persons. Each joint owner is sometimes referred to as a co-owner.
When you own property with someone else, your rights (and those of your co-owners) depend on the type of joint ownership which exists:
- “Joint tenants” or
- “Tenants in common”.
When you are buying a property on a joint ownership basis, discuss with your solicitor the type of joint ownership which is most appropriate in the circumstances.
The type of joint ownership will normally be set out in the purchase deed, which is usually a Transfer or a Lease.
You can also find this information by looking at the register of title kept by HM Land Registry. Copies of the register of title can be obtained online by application to HM Land Registry.
2. Ownership as joint tenants
Where you own property as “joint tenants” or as “beneficial joint tenants” or on a “joint tenancy basis”:
- You have an equal right to the whole property
- If you die, the property automatically passes to the surviving owner/s
- You are not entitled to pass ownership of the property by your will.
A key point about this type of ownership is that in the event of your death, your ownership of the property passes to the survivor or survivors.
If that is not what you want, this method of joint ownership will not be suitable for you.
3. Ownership as tenants in common
Where you own property as “tenants in common”:
- You are able to own different shares of the property
- If you die, your share of the property does not automatically pass to the surviving owner/s – destination depends on your will or the intestacy rules which apply when someone does not make a valid will
- You are entitled to pass ownership of your share of the property by your will (or the rules of intestacy).
A key feature of this type of ownership is that you are able to specify the share of each co-owner and on death the share of the deceased does not pass automatically to the survivor/s.
4. Changing the type of joint ownership
You can change the type of joint ownership which applies.
Joint tenants – if you divorce or separate from a spouse or partner, you may wish to change from joint tenants to tenants in common…allowing you to leave your share of the property to someone else per your will or the rules of intestacy.
Tenants in common – if you marry or become engaged to a joint owner, you may wish to change from tenants in common to joint tenants…allowing both of you to have equal rights to the whole property.
You should annually review whether the type of joint ownership which you have is still suitable in all the circumstances.
To change from joint tenants to tenants in common, the joint tenancy needs to be severed or ended by a “Notice of Severance”.
It is best practice to consult a lawyer before proceeding with any change to the type of joint ownership.
WHY YOU SHOULD BUY
Say no to being a tenant forever (how to escape the tenant trap)
Best time to buy (a look at the ideal time to buy a property )
Home owners are investors (the investment benefits of homeownership)
5. The importance of a will
It is especially important to have a will where you own property on a tenants in common basis – enabling you to state the destination of your share of the joint property.
6. Power of Attorney
A power of attorney is another key document to consider in joint ownership situations, especially in the case of older persons.
If one of the co-owners loses “mental capacity”, the other co-owner/s – if they have a Power of Attorney in their favour – can conveniently deal with the property without needing to apply to the Court of Protection.
7. Deed of Trust
It is highly recommended that in joint ownership cases there is a Trust Deed or joint ownership agreement setting out the rights of the
co-owners and what should happen in certain key situations – such as one party wishing to dispose of their interest in the joint property or the death of a co-owner.
In the absence of a Trust Deed, disputes are more likely to arise and expensive court proceedings may be necessary to bring about a resolution.
8. Relationship breakdown
If your relationship with your co-owner breaks down there are several matters to consider including: whether the property should be sold, who should live at the property, who will pay the mortgage and what type of joint ownership should apply going forward.
If divorce proceedings are necessary, the position of the joint property may be dealt with in the divorce proceedings.
Sometimes joint owners do nothing after a break up, with one of the owners simply moving out and making no financial contribution to the property thereafter.
However, when it is necessary to sell the property the signature of the absentee owner will be required and at that point disagreements over money can arise, leading to the sale not going through.
It is therefore best practice, for all involved, for legal advice to be sought immediately after one party permanently leaves the property.
A divorce does not necessarily terminate a joint tenancy. If you want a joint tenancy to convert to a tenancy in common seek legal assistance to enable a “Notice of Severance” to be served and registered.
If one joint owner wants to sell the property but the other does not, court proceedings will be necessary.
WHAT CAN YOU BUY
Legal title when you buy UK property (the rights you get on your purchase)
Types of residential properties (some of the property types buyable in the UK)
A house or a flat? (a look at the key differences between the two when buying)
9. Financial downsides of joint ownership
If the joint property you own is subject to a mortgage, liability for the mortgage debt and the monthly payments will normally be “joint and several” – which means that the lender can come after you for full payment if your joint owner fails to pay their proportion of the liability.
If you own property on a joint tenants basis, your interest in the property may be vulnerable to creditors in the event of court, insolvency or enforcement proceedings against your joint owner.
10. The benefits of joint ownership
Although owning a property jointly requires regular monitoring and can lead to a number of issues, joint ownership is often an effective way to acquire a property from a practical or financial perspective.
- With two owners, they are each entitled to a £3,000 government bonus when saving to buy a home through a Help to Buy ISA
- It is easier and quicker to save a deposit where more than one person is saving
- The salary of two or more joint owners allows greater borrowing power in terms of a mortgage, enabling the borrowers to potentially borrow more or faster, buying a bigger or better property
- It should be easier to afford the running costs of a home if there is more than one salary to rely on.
Joint ownership is a great practical device to reach more quickly the point at which you become a homeowner. However, it is a method of ownership subject to more issues and risks than sole ownership.
It is prudent to consider joint ownership only with persons you trust implicitly, ensuring that there is a Trust Deed or joint ownership agreement.
Above all, you should promptly take legal advice in the event of relationship breakdown or any dispute in relation to the joint property.
Have you thought about buying a property on a joint ownership basis? Do you have any concerns about doing so? Please leave your comments below.
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Rebel Property Coach
My website is: www.rebelpropertycoach.com