The Dangers of Joint Purchasing

  • Buying with someone else has many advantages
  • But the drawbacks of co-ownership should not be ignored

You often hear of the many advantages of co-ownership – notably, making purchasing more accessible and reducing the costs of running a home.

But joint ownership is not without its downsides and you need to be fully aware of them when you are buying a property with someone else.

Failure to do so can result in disputes and cost you money, inconvenience and distress. You may even get dragged into expensive litigation.

To minimise problems, you should be aware of the following 5 key considerations when buying on a joint purchase basis:

1. Know the nature and types of joint ownership
2. Carefully choose the appropriate type of joint ownership
3. Have a trust deed drawn up where relevant
4. Know when and how to change the type of joint ownership.
5. Seek legal advice where there are problems or a relationship breakdown

1. Know the nature and types of joint ownership

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 is created:

  • “Joint tenants” or
  • “Tenants in common”.

Ownership as joint tenants

Where you own property as “joint tenants” or as “beneficial joint tenants” or on a “joint tenancy basis”:

  • You and your co-owner/s have an equal right to the whole property
  • If you die, the property automatically passes to the surviving owner
  • 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 surviving co-owner.

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  co-owner does not pass automatically to the survivor.

Conversion

You can convert from joint tenants to tenants in common, and vice versa.  See numbered paragraph 4 below for more information.

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2. Carefully choose the appropriate type of joint ownership

Discussing the matter with your co-owner, you should carefully choose the type of co-ownership most appropriate in the circumstances.

If you want each co-owner to be treated as owning the whole property, with the property passing to the survivor following a death, you should opt for a joint tenancy.

If you are in a relationship with the other co-owner, joint tenancy is often, but not always, appropriate.

If you don’t want the rule of survivorship to apply, go for ownership as tenants in common, identifying the percentage or share of each co-owner based (usually) on their actual contribution to the purchase price and costs. 

Where the co-owners contribute unequally to the purchase price, it is usually appropriate to opt for a tenancy in common, recording the financial contribution of each co-owner.

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3. Have a trust deed drawn up where relevant

If you opt for a tenancy in common when you buy, you should also ask your conveyancer to prepare a trust deed setting out matters such as:

– the share or percentage of each co-owner

– the contribution of each co-owner to mortgage payments and building insurance

– responsibility for maintenance of the property

– provisions for sale in the event of the death or bankruptcy of a co-owner or one co-owner wanting to move out or sell.

After converting from a joint tenancy to a tenancy in common, you have the option of putting a trust deed in place – if one can be agreed with your co-owner.

In a tenancy in common situation, it is best practice to ensure that you have a will setting out the destination of your share of the property in the event of your death.

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4. Know when and how to change the type of joint ownership.

The big risk of co-ownership is that with the passage of time the co-owners may fall out – usually for money or relationship reasons.

If you hold on a joint tenancy basis, on a fall-out you will probably not want the property to be inherited by your co-owner in the event of your death.

Where you consider a joint tenancy no longer appropriate,  you can convert the joint tenancy to a tenancy in common by serving a “notice of severance” on your co-owner – ideally via a conveyancer, and after taking legal advice. 

A notice of severance could be in the following form:

“Please accept this letter as notice that the joint tenancy in the property xxxxx is from the date of this letter severed and we will hereafter own the said property as tenants in common”.

In most cases, your conveyancer should arrange for HM Land Registry to be notified of the notice by arranging for a “restriction” to be registered in the Proprietorship Register kept by the Registry.

Your conveyancer should also try to agree a trust deed with the other co-owner if relevant.

If you start off with a tenancy in common and you relationship with your co-owner becomes closer – perhaps leading to marriage or co-habitation – you may decide to convert from a tenancy in common to a joint tenancy.

That can be done by way of a trust deed and, in most cases, HM Land Registry will need to be notified of the change.

5. Seek legal advice where there are problems or a relationship breakdown

It is highly risky not to seek legal advice immediately there are problems or a breakdown in relations with your co-owner.

Often on a relationship breakdown, one co-owner will move out and the other will remain, paying the mortgage and maintaining the property.

That can continue for years, and it is often only when the remaining owner wants to sell or mortgage the property that the co-owners start to communicate.

At that point they typically cannot agree, especially on financial matters relating to the property, and often protracted disputes follow and court proceedings may be necessary.

Accordingly, it is best practice to seek legal advice as soon as there is a serious problem or relationship breakdown with your co-owner.

Take legal advice to identify and assess your options.

If the property is held on a joint tenancy, you will probably want to convert the joint tenancy into a tenancy in common by serving a notice of severance.

If you want a sale, there may be less friction if negotiations are conducted through your conveyancer, especially if the breakup is bad and feelings are high.

If a sale is to be postponed and one of the co-owners is to be permitted to remain at the property for a period of time, for instance until children reach a certain age, a trust deed should be prepared, providing clarity and certainty for both parties. 

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Conclusion

Co-ownership is an excellent device to truncate the time it takes you to get on the property ladder.

However, if things turn sour between you and the co-owner, it is critical to seek legal advice promptly.

The worst thing you can do is to allow things to drift or deteriorate to the point where only expensive legal proceedings can resolve matters.

If any issue or dispute arises with your co-owner, always take legal advice at the earliest possible opportunity

Enjoyed this blog? Please share it with friends by clicking on the LinkedIn, Twitter, Facebook or Instagram icon on this page. 

Have you co-owned a property and experienced issues or problems? Are you willing to share? If so please leave your observations or comments below.

You may also find the following blogs useful:

3 biggest mistakes of UK homeowners (errors which will cost you dearly if made)
4 property errors never to make (mistakes easy to make – terrible consequences)
20 bad property mistakes (easily avoidable errors that can cost you money)

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Dalton Barrett
Rebel Property Coach

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My website is: www.rebelpropertycoach.com

 


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