Congratulations if you’ve taken the decision to purchase a home together. However have you thought about and decided whether you want to own the property as joint tenants or tenants in common?
What are the differences?
Where the property is held by two or more persons as joint tenants it means that if one of you dies then the property automatically passes to the survivor or survivors and therefore the deceased person’s share in the property cannot be bequeathed to anyone in his or her Will. This means that should you have children from a previous marriage or relationship then they will lose out as your interest in the property will pass to the surviving joint tenant or tenants. Therefore if you do have children from a previous marriage or relationship it would be advisable for you to hold the property as tenants in common.
Holding a property as joint tenants also means that in the event of a sale of the property (after deducting any mortgage, estate agents fees and legal fees) the net proceeds of sale are divided equally between the two owners (or three etc). This is likely to be the case even if one of you put more money into the property than the other. It would also mean that in the event of a breakdown of your relationship with the other joint owner or owners then the net proceeds of sale would again be split 50/50 in the case of two joint owners. This would not necessarily apply to joint owners who were married as there is specific legislation which deals with the distribution of property in the event of a divorce.
However you need to seriously appreciate that if the property is held as joint tenants, even though one of you may have contributed significantly more towards the property, the net proceeds of sale would, in the event of a breakdown of the relationship, normally still be split 50/50.
Tenants in Common in equal or unequal shares
In contrast to joint tenancy, where the property is held as tenants in common in the event of the death of one of you, the property will not pass to the survivor automatically. The parties need not hold the property in equal shares. They can be in equal shares or in any other proportion which the joint owners agree upon. In the event of your death, the survivor or surviving owners must pay to the estate of the deceased party half the net proceeds of sale or whatever share the deceased party had in the property.
A tenancy in common may occur when a couple are purchasing together but have children from previous relationships. A tenancy in common is essential to ensure your children inherit your interest in the property. To be on the safe side you should also make a will and state that you want your children to receive your share ,otherwise the rules of intestacy will decide who receives your share.
This way of holding property is also advisable for couples who decide not to marry, who are contributing different amounts of money to the transaction. This will protect their individual interest in the property and the sums invested in the property.
Where a property is to be held in either equal or unequal shares, the transfer deeds for the property should specify the shares of the two (or more) parties. In the case of unequal shares it may be appropriate for the interests of each party to be set out clearly in a declaration of trust.
What is the best: a Joint Tenancy or a Tenancy in Common?
There are advantages and disadvantages to both. What is best for you depends on your individual circumstances. Many married couples will choose joint tenancy as they may not see any advantage in defining separate shares especially if they do want the property to pass automatically to the surviving spouse if one of them died. However it may be appropriate to combine the decision of whether to hold the property as joint tenants or tenants in common with advice on making a Will. For instance an elderly couple may, on taking legal advice, decide that they do not want the property to pass automatically to the surviving spouse as it could cause potential problems if the surviving spouse had to go into a care home.
A tenancy in common may be particularly suitable for couples where one spouse has children from a previous relationship, couples who are not married, siblings, parents and children or even business partners as in these sort of cases one of the owners of the property may not want the other owner(s) to inherit their share. It is therefore crucial that you do obtain specialist legal advice prior to deciding on whether you wish to hold the property as joint tenants or tenants in common.
To discuss the most suitable option for your own situation, please call Howard on 0113 320 5000 or email email@example.com