What is Joint Tenants and Tenants in Common
One of the most important things most people do is buy a property, it is a significant commitment. If you are purchasing a property jointly with someone else, then you have two options you need to consider how you are both going to own the property. Are you both going to hold it as:
- joint tenants?
- Or: tenants in common?
The correct way forward depends on varies factors, which includes your relationship with your co-purchaser.
You need to consider all the advantages and disadvantages of the two options, trying to make any changes later involve further costs and possible complexities.
So, you need to know what the difference is and does it really matter Joint tenants or tenants in common. It does matter, and you need to carefully consider which is right for you.
Joint tenant’s or tenants in common, does it matter?
In the future, at critical moments, it may matter, in the event of divorce or death of one party, it may make a significant difference.
To buy a property as Joint tenant’s or as tenants in common is an important question to consider before you purchase a property. A solicitor will need to know how the property is going to be held by the co-owners. This is required before a property can be registered with HM Land Registry.
Joint tenant’s & tenants in common – the pros and cons
Joint tenants – the good thing about a joint tenancy is that the parties own the property equally with whoever they are buying it with. This option seems to be a popular choice when purchased together with family or a friend. The Joint tenant’s alternative seems to be desirable for most people because it simplifies beneficial ownership. The Joint tenant’s route involves fewer documents, and legal fees are likely to be less too.
Joint tenants have a simple relationship, and in turn, there is no requirement for a document that defines it in detail. Suppose two parties are involved, and they have made an unequal contribution towards the purchase of the property. Even if one of them has paid 90% of costs, they will still only own 50% of the property.
If in the future you want to sell the property, then both parties will need to sign the transfer deed, also known as the TR1 form.
If consent from all the legal owners cannot be established, then it will be necessary to obtain a court order to proceed with the sale.
Once the property is sold, the money can be split equally between the parties, due to the fact both joint tenants have the same equal interest in the property.
The right of Survivorship as Joint Tenants
The fundamental difference between “joint tenants” and tenants in common is Survivorship which means that, in the event of the death of one of the owners, the property automatically passes to the surviving person and becomes their property.
However, “tenants in common” prospective owners can have an uneven ownership share in the property. Tenants in Common is usually used when buying a property with someone who is not close to each other, or do not fully trust each other, or maybe business partners.
Buying as tenants in common and a Deed of Trust?
Safeguarding your interests when buying as tenants in common is essential, which is why there is a variety of Deed of trusts. Deed of Trust can be used for married couples, long term relationships and family.
What is a Deed of trust?
In the UK, a Declaration of Trust is also known as a Deed of Trust. This is a legally binding document that records the financial arrangements between joint property owners, and or anyone else who has a financial interest in the property.
A Deed of Trust which stipulates that the arrangement will be as ‘tenants in common’ if any of the owners die. Then the deceased owners share will not pass to any survivor but will pass onto whoever the dead person has previously nominated as the beneficiary.
Who typically chooses this type of ownership?
If a property is held as joint tenants, you can change this type of ownership to become tenants in common – which is known as ‘severing’ a joint tenancy.
The elderly for example who may be worried about the cost of care home fees may be able to benefit from this type of ownership.
Owning a property as tenants in common, in the event, you require full-time care, you will only be means-tested on your share of the property. This means you can reduce the potential exposure for care fees.
Tenants in common
Suppose a couple own their home as joint tenants. This means that both own the whole of the house.
With tenants in common, each owns a set possibly an uneven share. This can either be half each or a defined percentage share ownership of the property.
If you own your home as joint tenants, then if one partner dies, the other automatically becomes the sole owner of the house.
Benefits of changing your property to Tenants in Common?
It can potentially safely guard your home against being taken to pay for costly long-term care bills.
It can ensure that half of your house eventually goes to your children even if your widow re-marries. A properly written Will is vital to confirm this.
You need to be aware that a surviving spouse could have more children by a new partner who would dilute your own children’s inheritance.
Do I need a specific mortgage for Tenants in Common?
No, you do not need a specific mortgage for tenants in common. You simply need a regular mortgage, and your lawyer will be able to draft the ownership documents.
Changing a joint tenancy to a tenancy in common
You can if you wish, the procedure is straight forward. If the property is held as joint tenants, you can change your type of ownership to become tenants in common. This is known as ‘severing’ a joint tenancy.
Tenants in Common- What happens to jointly owned assets upon death?
Either a person can dispose of their share of the jointly owned asset however they like in their Wills or following their death; or
That the surviving owner will automatically inherit their share of the joint asset following their death.
The position following death depends on the type of asset owned.
Property and land:
Some people refer to the term “joint tenants in common”, but really there are two ways of owning property, the first way is as “tenants in common” and the second way is as “joint beneficial tenants.” Owning the property as tenants in common means that each person owns a separate and distinct one-half share of the property, which they can leave to whomever they wish in their Wills.
If the owners instead hold the property as joint tenants, this means they are not able to leave their individual shares of the house in a Will and that upon the first owner’s death, their share will automatically pass to the surviving joint owner.
It is crucial to think about how you want to own property and how you plan to dispose of the property following your death. If you and your partner hold your property as joint tenants, then you are often able to sever the joint tenancy. This will allow you the freedom to leave your share of the property in your Will.
Bank accounts and other assets:
Assets other than land and property, such as bank accounts or investments, which are owned by two or more people will generally be held as joint tenants. This will mean that upon the death of one of the joint owners, the asset will automatically pass to the surviving joint owners.
It is becoming increasingly common for children to open joint bank accounts with one of their parents, for example, if their parent is elderly and has difficulties in dealing with their own affairs. This raises problems if the parent later dies, as it may be difficult to tell whether the parent intended for the account to pass automatically to their child (mainly if they had other children or relatives they might have intended to benefit).
It is vital that at the time of opening the joint account, there is a clear indication of who the funds in the account belong to. The intention as to their use and the ultimate beneficiaries on death.
In a lot of cases, it may be better for the parent to enter a Lasting Power of Attorney, providing that they have sufficient mental capacity to do so. This would allow them to appoint an Attorney of their choice to act on their behalf in dealing with their financial affairs.
In this case, there would be no need to open a joint bank account, as the Lasting Power of Attorney will enable the Attorney to manage the funds in the parent’s bank account for the parent’s benefit. This will ensure that it remains clear that the funds in the account belong solely to the parent and should be used for their benefit.
What is a joint tenancy?
Joint tenancy is a form of ownership where each person owns the whole of the property, so each person has a 100% stake in the property’s value.
Legally you must all act together as a single owner. You would need to get one joint mortgage to cover the amount you are borrowing to buy the property.
If you want to sell the property, then you must all agree.
As a joint tenant, you cannot leave part of the property to someone else in a will. If one of the owners dies, the property will automatically pass to the other owner. This is known as ‘right of survivorship’.
Married couples that own property together generally would be joint tenants.
In Scotland, this type of ownership is legally known as ‘joint owners with a survivorship clause’.
Source: British Landlords Association
Author: Amanda Goldsmith
Date: 6th of November 2002
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