- Joint ownership has many enticing benefits
- But it is foolish to go into it without a clear understanding of what it involves
Buying a property with someone else can have major practical and financial advantages – especially in relation to saving up for a deposit, getting a mortgage and paying household bills.
But what exactly is joint ownership or co-ownership? What does it mean? What are the pros and cons?
This blog takes an in-depth look at joint ownership in terms of its:
– key features
– risks and dangers.
You can own property on your own, in your sole name, known as sole ownership.
You can own property with someone else, known as joint ownership or co-ownership.
Types of joint ownership
There are two types of joint ownership:
– Where the joint owners own as “joint tenants”
– Where the joint owners own as “tenants in common”.
If you hold property as joint tenants with others:
– you all have equal right to the whole property; all of you own the whole property; there is no share involved in the strict sense of the term
– if you die, the property automatically passes to the other joint owners
– your interest in the property does not pass under your will.
Tenants in common
If you hold property as tenants in common with others:
– you can own a different share of the property; shares can be equal or unequal
– if you die, your share does not pass to the other co-owners
– you are able to pass on your share in your will.
Trust Deed or Declaration of Trust
Where joint owners hold as tenants in common, it is good practice for them to ask their lawyer to draw up a ‘trust deed’ or ‘declaration of trust’, setting out various matters – including the share of each joint owner and the division of the proceeds of sale.
Changing your type of joint ownership
Because of the implications of each type of ownership, you may want to change the type of ownership in certain circumstances.
Joint tenants to tenants in common
If you own property on a joint tenants basis, you may want to change to tenants in common in the event of separation or divorce. Therefore, if you die, the property will not pass automatically to your spouse or former spouse.
Your share in the property under a tenancy in common will pass to the person chosen by you in your will, or under the rules of intestacy if you do not leave a valid will.
Tenants in common to joint tenants
You may want to change from tenants in common to joint tenants if, for instance, you marry the other joint owner and decide that you want both of you to have equal right to the property – with it passing to the survivor on the death of one of you.
It does not necessarily follow that you will want to convert to joint tenants following marriage. There may be important practical, monetary or inheritance tax reasons for not doing so. Always seek suitable expert advice in advance of any conversion.
Procedures when changing your type of joint ownership
If you wish to change the way you own joint property, it is highly advisable to seek legal advice and assistance to ensure that you follow the correct procedures and do everything right. However, the main aspects of the procedures are set out below.
Joint tenants to tenants in common
The most common change is probably where you want to move from being a joint tenant to being a tenant in common.
The procedure varies depending on whether the title to the property is registered or unregistered. However, in both cases, one of the joint owners must serve notice on the other/s informing them that the joint tenancy has ended.
There is no special form of words required. The notice, which could be in the form of a letter, could read:
“Please accept this letter as notice that the joint tenancy in the property xxx is from the date of this letter severed and we will hereafter own the said property as tenants in common”.
In the case of a registered property, you must then ensure that HM Land Registry is aware of this change by arranging for a “restriction” to be registered in the Proprietorship Register.
The effect of the restriction is to notify any potential buyer that there is a tenancy in common and so they are not free to deal with just one of the joint owners.
In the case of an unregistered property, the change in the type of joint ownership is recorded by a memorandum or note (called “a notice of severance”) endorsed on the relevant title deed.
Tenants in common to joint tenants
To change from tenants in common to joint tenants, you will firstly need a written declaration as to the change in the type of ownership.
In the case of a registered property, you will also need to register the change with HM Land Registry. The Land Registry will then remove the “joint proprietorship restriction” from the Proprietorship Register.
Going from sole ownership to joint ownership
If you have a property in your sole name, you can convert it into joint ownership with another person or persons, as joint tenants or tenants in common.
This is known as a transfer of ownership.
You may want to carry out a transfer of ownership in favour of a partner or spouse.
If you want to sell a property and a joint owner lacks “mental capacity” to sell, you may need to apply to the Court of Protection
However, if you have a power of attorney in favour of the person who lacks mental capacity, you may be able to proceed without the involvement of the Court of Protection.
You should of course take legal advice before proceeding if you suspect a joint owner lacks mental capacity.
Finding out the type of joint ownership that applies to you
If you own property jointly with someone already, you can find out the type of joint ownership which applies by:
– checking the title deeds (conveyance or lease) in the case of unregistered property
– checking the information kept by HM Land Registry in the case of registered property.
Most property is registered and details of ownership can be obtained by requesting ‘register entries’ from HM Land Registry.
It is possible to obtain register entries online upon payment of a small fee.
In the section called “Proprietorship Register” you will find the names of the joint owners.
If the joint owners own the property as tenants in common, there will be a “restriction” in the Proprietorship Register, reading something like:
“No disposition by a sole proprietor of the land (not being a trust corporation) under which capital money arises is to be registered except under an order of the Registrar or the Court”.
If the joint owners own as joint tenants, there will be no such restriction.
In the case of unregistered property, you should look at the conveyance (freehold land) or lease (leasehold land) for words which reveal the type of joint ownership.
Look out for a clause which indicates that the property was conveyed or leased to the owners “….as joint tenants” or “… as tenants in common”
Risks and dangers
Clearly you need to fully know and trust any person you choose to buy a property with.
In particular you should be confident as to how they may react in the event of challenges, difficulties or issues with the joint ownership.
Further, you need to know the arrangements in place to deal with problems, issues or disputes which may arise.
You need to know what can go wrong, and the possible solutions.
The main way to pre-empt problems is to ensure that a deed of trust is drawn up at the time of purchase.
Ideally, this deed should not just deal with the type of ownership – joint tenants or tenants in common – but should address key points such as:
– what should happen if a joint owner wants to sell
– what should happen if a joint owner dies or gets into financial difficulty
– responsibility for the mortgage payments (if any) and the household bills
– how the net proceeds should be shared on a disposal.
A particularly important point to consider is the deposit on the purchase. The exact amount of deposit contributed by each joint owner should be made known to the conveyancer, who should be asked to record the sums in writing to minimise future uncertainty or dispute.
If the joint owners do not provide an equal deposit, this should be taken into consideration in deciding whether they should own as joint tenants or tenants in common.
If they hold as tenants in common, careful consideration needs to be given to their share – having regard to their contribution to the deposit.
Joint ownership is often chosen because of the relationship between the co-owners.
Upon a relationship breakdown, you need to consider whether the type of joint ownership in place is still appropriate.
You may want to move from holding as joint tenants to holding as tenants in common to ensure that your interest in the property is quantified and will pass to persons of your choice by your will or the rules of intestacy, where you do not leave a will.
It is absolutely vital to seek legal advice as soon as there is a relationship breakdown.
It is a particularly bad idea for one party to move out and no decision made or steps taken – with everything left in limbo, perhaps for years.
Delay in addressing the issues increases the risk of expensive legal disputes and litigation.
On a relationship breakdown, your first concern should be to work out promptly, with advice, the best way to respond. For instance:
– Should you move out or should you remain in occupation until the way forward is agreed?
– Should you allow a cooling off period to see if things improve?
– If you are married, are things so bad a divorce will be needed?
– Should you sell the property immediately or hold it for a while and, if so, for how long exactly?
– If one party moves out and it is agreed the other party can remain, how should the mortgage payments and household bills be dealt with and how should the proceeds be divided on an eventual sale?
It is particularly important to take legal advice promptly if there is no deed of trust in place.
If you ensure that there is a comprehensive trust deed, you will reduce possible disputes and the likelihood of court proceedings.
The most likely areas for dispute are perhaps:
– when to sell
– division of the sale proceeds.
It the joint owners cannot agree on these or other big matters, expensive and time consuming court proceedings may be necessary.
As a cheaper option to court proceedings, you may be able to resolve matters by going for arbitration, which is usually simpler and quicker than court proceedings.
It is sensible to avoid court proceedings if at all possible; they can rapidly eat up the equity joint owners have in a property.
Teaming up with someone else to buy is a smart way to overcome issues of affordability and to shorten the period it takes you to become a homeowner.
However, you should always bear in mind the risks and dangers involved – and the best time to address them is before you purchase with anyone on a joint ownership basis.
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You may also find the following blogs useful:
Why become a homeowner (the many benefits enjoyed by homeowners)
Why renting is super stupid (rock solid reasons why you should buy not rent)
Easy home ownership (10 super-powerful reasons for homeownership)
Top 5 tips for first time homeowners the world over (essential general information)
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Rebel Property Coach
My website is: www.rebelpropertycoach.com