As co-owners of your new property, you will hold the legal title (this means the names which will appear on the Deeds) as “Joint Tenants”.
However, the legal title does not always reflect the actual ‘stake’ each person has in the property (e.g. if A contributed £20,000 but B contributed £50,000 towards the purchase price, B would usually expect to have a higher stake in the property). This is legally referred to as the “beneficial interest”. This means you will need to consider how the beneficial interest in the property should be split and to ensure your Wills are up to date so that the property passes in accordance with your wishes in the event of your death.
In summary, you can hold the beneficial interest in the property either:
1. As beneficial Joint Tenants; OR
2. As Tenants-in-Common
“Joint Tenants” and “Tenants-in-Common” are simply examples of legal jargon which indicates how you hold the beneficial interest in the property. This is entirely different to the legal meaning of a tenant who rents a property from a landlord.
Beneficial Joint Tenants
This means there are no individual shares, so both of you own the whole of the property. As you do not have your own share, you cannot leave your share in the property in your own Will, as in this scenario the property goes automatically to the surviving owner regardless of what the Will says. This is usually referred to as the “right of survivorship.”
If you sell the property or separate, it will be assumed that you hold the property 50/50, regardless of who contributed what towards the purchase price.
Married couples or civil partners often use this option of co-ownership because the right of survivorship saves the survivor time and hassle.
When is it not advisable to be Joint Tenants?
- If one party paid more towards the purchase price of the property and wishes this to be recognised when the property is sold or if you separate.
- If you have a family from a previous relationship and wish to ensure they get some of your share in the property, instead of it going automatically to the co-owner, who is not obliged to leave any of the property in their own Will to your family.
- If you have general concerns about futureproofing your share of the property against events such as: remarriage of the survivor; care fees of the survivor using up your share of equity; third Party claims against the survivor; the survivor falling out with your family and not allowing them to have your share of the property.
This means each of you owns a specified share in the property. This can either be a fixed percentage that is set when you buy the property; or whether you would like any future contributions made by each of you, such as paying for home improvements, to be reflected in your eventual share of sale proceeds.
How do you decide which option is best for you?
- If you set a fixed percentage at the outset. This could mean equal shares (50/50) or unequal shares such as 65/35 or whatever you agree reflects your contributions.
A potential problem with setting out your shares at the outset is that if circumstances change (i.e. one of you ends up actually covering most of the mortgage payments), you would need to formally review how the shares should be split at some point in the future to ensure you are treated fairly upon sale of the property or separation.
- If your contributions are likely to vary or be unequal after you buy the property, this means your individual shares will vary at any given time, depending on who has been paying for what at that time. It is a good idea to ensure your ultimate beneficial interest reflects this. There are legal ways in which you can protect your shares, but it is equally important that keep accurate records of each person’s contributions.
The key legal point with Tenants-in-common is that regardless of your share or how it is worked out, your share of the property can be passed on to a person or people of your choice, rather than going automatically to your co-owner. Ideally you will have a will which specifies who gets what. If you don’t, your share will pass in accordance with the rules of intestacy.
This is the most appropriate option if you have children from previous a relationship and would like them to inherit your share when you die.
If you are buying a home together and would like advice on the best way to protect your share of your property and other assets, please contact Alexandra Livesey or Paul Solomons to arrange a free initial no-obligation consultation.