How much of your home will you own?

If you buy a property there are many things to think about including location, affordability and state of repair. If you buy a property with two or more other people, there are additional important points to be aware of. Don’t overlook these important points. In this article, Michelle Cochrane from Holmes & Hills Solicitors explains the different ways a property can be owned together and the key differences between each method of ownership.

Two ways to own property together

When you buy a property with someone else you need to consider how you want to own the property. This will depend on your own and your co-owner’s circumstances, for example, have you contributed to the purchase price equally or not, will your co-owner inherit the property should you die, do you have children from other relationships that you would like to benefit?

Your answers to these questions and your own personal circumstances will suggest whether you need to own your property as ‘joint tenants’ or ‘tenants in common’.

Joint tenants

If you own the property as joint tenants:

The co-owners own the whole property together. There are no distinct shares.
On a sale of the property each owner would be entitled to receive half of the proceeds of sale.
The property automatically passes to the surviving co-owner on the death of a co-owner. It doesn’t matter what your Will says about the property. If you want your children from a former relationship to benefit from the property they may not do so.
If a couple divorce or separate they should get legal advice as it may be better to be tenants in common.

Tenants in common

This method of ownership is increasingly popular with cohabiting couples and also on second marriages. If you own the property as tenants in common:

The co-owners own a share of the property. This might be 50:50 but it can be 40:60 or 90:10 depending on the amount contributed by each co-owner and other factors to be taken into account. One co-owner may have paid the deposit, the other the mortgage or paid for building work.
On a sale of the property each owner is entitled to receive his or her designated share of the proceeds of sale.
The property does not automatically pass to the surviving co-owner(s). It is essential that each co-owner makes a Will and covers who inherits his or her share of the property. If you wish to leave your share of the property to your children, then you must make a Will. It is also important to think about a surviving co-owner’s continued use and occupation of the property, otherwise they may lose their home. People often use a life interest trust in their Will which can protect co-owners and their families.

Changing circumstances

Circumstances change. It may be you initially agree with your co-owner to be tenants in common but you marry and wish to change to joint tenants. Changing between the two forms of ownership is a straightforward legal process.

What do I need to do to protect what I own?

Apart from checking whether you are tenants in common or joint tenants:

• Make a Will. This is crucial for everyone but especially if you are tenants in common. If you do not make appropriate provision for loved ones or secure the occupation of your co-owner, a claim may arise on your death leading to expensive court proceedings.
• Consider a pre or post nuptial agreement. You will need to get specialist legal advice as this agreement may influence the split of assets including your property on divorce.
• Consider a Cohabitation Agreement. Again, you will need specialist legal advice as this agreement can affect all your assets on a separation.
• Declaration of Trust. This is a legal agreement between people who co-own a property. The agreement can set down each co-owner’s share, how repairs, maintenance and insurance are covered, what happens if a party moves out (do they have a right to receive rent), who pays the mortgage and if a relationship breaks down, sets out the process for the sale of the property which may include its purchase by one of the co-owners. Declarations of Trust are particularly advisable when parents or grandparents contribute to the purchase of a property. A declaration of Trust will ensure these funds are protected when the property is sold or in the event equity is transferred, whether due to the relationship breaking down or simply due to moving.

Whether you are just about to purchase a property or would like to understand more about your individual position, contact Michelle Cochrane at Holmes & Hills in Coggeshall on 01376 557322.