There are many reasons for co-owning property, of course the most common being in a situation of married couple or long term relationships. In times when it is difficult to buy property, there is also a growing trend for people purchasing together, thereby sharing the cost.
In such situations it is important to think carefully as to in whose name you will register the property and if in both names, how the property is to be held and issues such as who will contribute what to the purchase price, mortgage and other outgoings.
It is important to be aware that if both owners are on the mortgage, which is standard, there will be joint and several liability in the event of default. This means the lender can pursue just one of the owners if it so chooses.
It is also worth being aware of what will happen if one of the owners wants to sell but the other does not. In the absence of an agreement on this and set timetable, it would require possibly lengthy and expensive litigation for the party wishing to sell to get a sale through.
With co-ownership, in situations outside of marriage, we always recommend a co-ownership deed between the parties, to deal with issues such as those raised above.
There are two ways to hold the beneficial title to property jointly, each with significant differences.
Joint tenancy or tenancy in common? What’s the difference? Why does it matter?
1. Joint Tenants
This is where the joint owners are all equally entitled to the property. This often occurs when the parties want to own it together regardless of who paid the purchase price or who pays the mortgage.
Under this joint ownership when one of the owners die, their interest passes automatically to the surviving owner(s). So for example, if there were two joint tenants, then the surviving owner would now become solely entitled to the property.
This means that a joint tenant cannot pass their share of the property through a Will to other members of their family, it can only pass on their death to the surviving joint owner.
It should be noted that whilst it is considered ‘outside’ of their estate on their death, since it passes to the joint owner, it is still considered part of the estate for potential Inheritance Tax purposes.
2. Tenants in Common
This is where the property is held in specific proportions, which may or may not be equal. If the parties wish to hold the property in unequal proportions it is necessary to draw up a Declaration of Trust setting out the proportions each party is to have in the property. If it is to be equal, then on registering the property you can simply state that the property is to be held as tenants in common and it will be assumed that it will be in an equal split.
In this case, if one of the joint owners dies then their share will form part of their estate and will pass to the person stated in their Will, or the appropriate person under the intestacy rules if they left no Will.
If you already jointly own, you can find out which way you co-own.
If you already own a property and want to know whether you are joint tenants or tenants in common you can check your Property Title at the Land Registry. The proprietorship register will show the names of the owners. If there is then a restriction stating “No disposition by a sole proprietor of the registered estate….” this will indicate that you hold as Tenants in Common. Should this wording not appear, then you are holding the property as Joint Tenants.
The parties can agree to change holding the property as Tenants in Common to Joint Tenants, but only if a formal Deed of gift is entered into by both parties.
However, to change from Joint Tenants to Tenants in Common, whereby a party wants to have their specific share of the property, this can be done by way of a ‘Notice of Severance’. You need to serve such a Notice on the other party. Whilst they need not do anything and need not even agree, you need to be able to show that such a Notice was sent.
If when you purchased a property only one persons name was put on the title, it will remain in their name, unless the other party can show that there was an agreed intention that both parties were to be entitled to a share in the Property.
The best way to evidence this would be by an agreement in writing, or alternatively if the unnamed party can show that they directly contributed to the purchase price.
Additionally, if that party can show that there had been an ‘understanding’ between them and the named owner, where as a result of such understanding they acted to their detriment – such as by paying off the mortgage for the owner – then it is likely that the Courts will agree that they are entitled to a share of the property.
If you need legal advice on co-ownership, either before buying or perhaps you need to get a co-ownership agreement in place or have a dispute about selling with a co-owner, we are highly experienced.
A trust for sale is the legal presumption that, where there are co-owners of a property and one party wants to sell, the property will be sold. The presumption can be challenged and set aside, but this almost inevitably means expensive litigation, which should be avoided.
The best way to set aside the presumption is to have an express contractual agreement, in the form of the co-ownership deed, setting out what should happen if one of the owners wants to sell. The usual way to deal with the issue would be to give the other owner(s) the opportunity to avoid sale by buying out the party who wants to sell, with a mechanism, in term of timing and possibly also valuation mechanism. If either party fails to comply, it is easier, quicker and almost certainly cheaper to resolve the issue with litigation based on the clear terms of an agreement.
Factors that may also come into account in a co-ownership deed will be, for example, what happens if the parties did not contribute equally to the purchase funds, what happens as regards who will contribute what to mortgage payments and outgoings if this will not be equal?
Another vital clause to include will generally be a cross indemnity clause to cover the situation where there may be a default in payment of the mortgage, the property has to be sold, there is negative equity, and the lender is still owed money even after sale.
In that situation, the lender may opt to go after either of the borrowers or both. If the lender only pursues 1 of the owners, that owner should have the right to be indemnified (to be reimbursed) the appropriate share attributable to the other owner which has been paid to the lender.
If you do agree that the property is not sold and that one of you buys the other(s) out, you will also need to deal with the formalities at the mortgage lender, to ensure that the now non-owning party is off the mortgage and that, in turn, will also of course mean that you will need to enable to satisfy the lender you can pay the mortgage. Remortgaging is common in these situations, both to raise the finance to buy out the other owner(s) and to resolve the issue of removal of the previous owner from the mortgage.
Assuming that you are in a situation where you jointly bought a property with no co-ownership deed, how might things pan out with an application for sale?
The first thing to be aware of is timing – if you want to sell, you could be waiting a number of months before you potentially get an order.
If the issue is disputed, as advised above, the presumption is for sale, but it could be set aside if the other owner(s) can convince the court that they put more money into the property. The main reason the court might not make an order would be if there are children – the rights and needs of children are always paramount and in those circumstances, much will depend on what assets there would be and ability to suitably rehouse the children if the property is sold.
If there is real malice between you and the other co-owner you may also find, as counter productive as it may for both if you, that the recalcitrant other party stops paying the mortgage and he/she may even still refuse to sign the contract and/or transfer deed even after you have an Order for Sale and a buyer ready to proceed. In that situation, you might even need to apply to the court again to sign the transfer deed in the co-owners name, in which case his/her share of the proceeds would probably need to be lodged at court for him/her.
Get in touch with us if you need advice on any aspect of property co-ownership, whether you want a trust deed (co-ownership deed) drawn up, have a dispute over co-ownership or any other property law issue.