In this article, we explain the difference between co-owning property as joint tenants and as tenants in common, and how it affects you. We cover how to deal with the problems of joint ownership, including how to sever a joint tenancy.
How property can be owned between people
Owners can hold any property such as a house, a flat, or even a boat or money in a joint bank account, in one of two ways: either as joint tenants or as tenants in common. These archaic expressions are based in The Law Of Property Act 1925, which although old, enacts a brilliant concept.
The difference in law
A joint tenancy is the default legal ownership status if no owner says otherwise.
You can think of a joint tenancy being the situation where the property is something that cannot be divided up - where you cannot say 'he owns that part, she owns that other part'.
The consequences of joint tenancy are:
- ownership is equal. There is no alternative.
- if one party wants out, then the other must agree to a sale of the property, or to buying the co-owner out. The other can be forced to sell by order of the Court if necessary, and the Court will order a sale by auction if one party refuses to co-operate.
- if one owner dies, then the other is left as the sole owner of the previously jointly held property. He or she owns it outright.
Tenancy in common
Here the notional situation is that each owner owns his or her own separate share and can do with it what he or she wants.
The consequences are:
- ownership is 50:50 by default, but if there is evidence that the parties have in the past agreed a different ratio, that ratio applies. So you can share the property in whatever proportions you choose. For example three family members might want to buy a flat together for their student children. Two might put in 30% each; the other 40%.
- if one party wants out, then just as if the owners were joint tenants, the others must allow that, whether it is done through a sale of the whole property and all owners cashing out, one of the other owners buying out the share, or a non-owner buying that share.
- if one person dies, his or her share is distributed as set out in his or her will (or according to the rules on intestacy if he or she has not made a will).
How do you become tenants in common or joint tenants?
The following applies to joint tenancy and to tenancy in common.
Up to four people can be named as legal owners. If there are more than four owners then ownership is through the device of a trust.
The additional owners (and there can be any number) can be named as beneficiaries of the resulting trust for sale. The legal owners hold the land as trustees for those who you and I would regard as the true owners (usually including themselves).
An analogy is to think of the property as a cake that two people bake. The bakers slice it up for others to eat later, maybe including themselves, and store it in a tin. There may be any number of slices.
It is the same with land and property. No more than four people can be legal owners (the bakers), but twenty people could be beneficial owners of shares (the cake eaters).
One more important point: if one cake eater wants to sell his slice, the law says that all the others must join in to sell the whole cake. Then each gets his share of the sale proceeds. Likewise, if even one beneficiary wants out, the trustees must sell and divide the proceeds.
Let us now apply that to the commonest situation: house ownership.
When you buy a house together, your conveyancer might not even ask you about different shares (he or she should but often it happens that he or she doesn't). He or she will simply assume that you want to be joint tenants and that you want to own it 'together' regardless of where the purchase money comes from or who pays the mortgage. Of course, the reality is that people often need to change that arrangement.
Happily, that draftsman back in 1925 thought up a very simple answer to that and it’s part of the law.
Changing from joint tenancy to tenants in common
This is called severing the joint tenancy. Here is the simple process, including registering property or land at the Land Registry.
- Write a letter signed by all the owners, agreeing to the change. It should state:
- the address of property
- the land certificate number if known
- the names of the registered owners
- a statement that 'We have agreed that as from today we shall own the above property as tenants in common and not as joint tenants.'
- the date
- the signatures of all the owners
- If one or more of the owners refuses to sign or cannot be found, then you are expected to make efforts to find him or her and send a message like the one above but with text edited to:
'This is to notify you that by this letter, I sever the joint tenancy that exists in law in respect of the above property'.
- If you can’t get the other owners’ signatures, then you can instead send a letter certifying that you’ve done one of the following with the notice of severance:
- given it to all the other owners
- left it at the other owner’s last known home or business address in the UK
- sent it by registered post or recorded delivery to the other owner’s last known home or business address and it hasn’t been returned undelivered
- If the other owners have not all agreed, download a form SEV and complete it. The Land Registry will want to be sure that you have really tried to serve the original letter and made efforts to locate and serve your co-owner with your ‘notice of severance’.
- Also download a 'Form A restriction'. Complete it and send with the original copy of the agreement letter mentioned above.
- Whatever procedure you have followed, send your application to:
HM Land Registry Citizen Centre
PO Box 74
There’s no fee.
The new arrangement will be recorded on your title certificate.
What is your arrangement?
For a joint tenancy there is no record of the trust in a document except a few words in the document transferring the property to the new owners.
If you want a different deal, you have to specify it.
There are two ways to do this. Either you can instruct your conveyancer to state in the transfer document that you own the property as tenants in common, and to specify your shares 'as to 45% to Jane Jones and 55% to Richard Smith',or you can draw a simple deed of trust or a tenants in common agreement in which the terms are set out.
It is by far easiest, and costs nothing extra, to set out your shares in the transfer document when you buy the property. However, the deal must be simple. It must specify only the shares.
If you want terms about the car, the dog or even the mortgage payments, you will have to use a separate document such as the one linked above.
Every document relating to 'an interest in property' should be registered at the Land Registry.
Almost all registered documents are open to the public, so anyone can look up your property and read your documents. So, if you do not want that information to be public, you should avoid cluttering any document relating to your title, with peripheral matters relating to your personal relationship and financial interest.
Note that if a document about property could be registered, but you do not register it, it is void against everyone except the people who signed it. In most cases, however, this is irrelevant.
So how do you deal with variable arrangements which cannot be decided in advance? You need to draw up a different agreement, a cohabitation agreement, signed by both of you, to record all other elements of your deal.
Examples of arrangements you could make are:
- whether mortgage payments add to the value of the share of one party, at the expense of the other;
- what happens if one party decides not to live in the property;
- business use of the property.
So the terms that go into this agreement include arrangements of a more personal nature. You can make this agreement as simple or as complicated as you like.
Business arrangements need to be tenancy in common
Suppose three friends decide to buy a house together as an investment property. They are not related, just friends. Each wants to keep his share. They decide to split the ownership pro rata with their contributions to the total purchase price. As it happens that works out at 46%, 28% and 26%. Since they want to own different shares, they must become tenants in common.
However, even if they each owned the same percentage share, they should still insist on buying as tenants in common so as to have total control of their personal share of the money.
Effect of separation or divorce
Your rights are very different if you are in a legally recognised relationship (like marriage or civil partnership) from your rights if you are not.
It you are married, family law applies. On separation, you can make whatever arrangement you like (use a deed of separation), but if you cannot persuade a judge that it is fair, he or she will make whatever order he or she thinks is appropriate.
If you are not married, basic law applies. Neither party can rely on being supported in any way that is not agreed and documented. It follows that if you buy property in just one of the partner's names, it remains that person's property on separation.
The only exception to this rule is if the other party can establish that there was a common intention that they would be entitled to a share in the property.
How do they do this? Here are a few examples:
- It has been agreed in a simple conversation (proving it tends to be the problem!), or in writing between the parties at some time.
- If the non-owning partner has directly contributed to the purchase price, the Court is likely to accept that he or she is entitled to some proportion of the ownership of the property.
- If there has been an 'understanding' between the parties and the non-owner has acted to his or her detriment as a result (for example, contributed to joint mortgage repayments, paid household bills, or, perhaps, sold his or her previous property so as to be able to live together in a larger house) then the Court may agree that they should share in the proceeds of sale of the property.
Effect of death
On the death of one of two joint tenants, the share of that person passes automatically to the other of them.
In law, that share is not part of the estate of the deceased. (Of course, HMR&C still get their 'share' as the change of ownership is treated as a 'disposition' for the purpose of calculating inheritance tax.)
There is an exemption from inheritance tax when the property (or any share of it) passes to a spouse or civil partner.
On the other hand, when one of two or more tenants in common dies, his or her share is treated as part of the estate. It passes as he or she has decreed in his or her will. (The spouse exemption for inheritance tax still applies.)
Be careful not to disinherit your children when you are joint tenants. Parties in an unmarried relationship may also own property together. They are usually best advised to hold it as tenants in common.
If one dies, his share as a joint tenant goes to his partner and not to his children, even if he would have wanted the children to have it. If she dies soon after, the value of his share in the house then passes under her will to her friends, relations or favourite charity. By now you will understand that this does not happen if they are tenants in common.
Issues about wills are covered in a series of articles. Of note, you may be interested to read about the effect of marriage and divorce, how to make sure the people you want to inherit your property do so, and how to make sure your will provides for your children.