Joint Tenancy & Tenants in Common
If you are buying a property with someone else, you will need to decide how you will share the ownership. There are basically two ways you may own property, either under a Joint Tenancy (as Joint Tenants) or as Tenants in Common.
Choosing the right way to hold the property is vital, as it can affect not only what happens when you sell the property, but also what happens if one of you passes away.
Below is an explanation of both ways to own property.
If you own the property under a joint tenancy, in the eyes of the law the joint owners are deemed to hold the property in equal shares, and on the death of one of them, his or her share passes automatically to the other by operation of law.
Similarly if there are more than two owners, ownership passes automatically to the remaining owners until ultimately there is only one. This automatic right to survivor-ship is irrespective of the provisions of any Will which a joint tenant may make during his or her life time. The survivor becomes the legal owner of the whole of the property without need for further documentation and any further sale or dealings with the title can be made by him or her without obtaining Probate to the deceased owner’s estate, and the survivor is solely entitled to the proceeds of sale.
On a sale of the property during the joint lives of the joint tenants the net proceeds of sale will be divided equally between them even if they have contributed the original purchase money and expenses such as stamp duty (which can often be significant) in disproportionate shares. This frequently causes distress between couples who are not married and who then separate on bad terms. The Partner who has contributed the larger share often complains it is unfair and seeks a larger proportion of the sale money in line with his or her original investment. The law does not assist such a claim and therefore couples who are buying jointly but not paying equally need to be particularly mindful of this and should give serious consideration to buying as Tenants in Common or having a separate Deed of Trust setting out what should happen in such an event.
The other situation where Joint Tenancy may be inappropriate is where divorcees or previously married people with existing families come together to purchase a property jointly. Automatic succession may not be appropriate as the claims of their respective children and existing families have to be considered.
Tenants in common
On the death of a tenant in common, his or her share does not pass automatically to the survivor but becomes part of his or her estate. It is then dealt with in accordance with the terms of the deceased’s Will, or, if the deceased did not make one, under the rules of intestacy.
Tenants in common can hold the property in equal or unequal shares. For example the shares can be 50-50 or in whatever specific percentages they declare, e.g. 70 – 30 , 60 – 40 etc.
Moreover the shares can be in accordance with each party’s contribution towards the purchase money. If the transaction is to be on this basis it is advisable and necessary for a separate document, (a Declaration of Trust), to be prepared specifying the division of the ownership. This deed can cover a wide-reaching number of points, for example the contributions made towards the purchase price, the payment of mortgage payments and up-keep and future maintenance of the property and the eventual division of future sale proceeds. A Trust Deed can provide that on a sale, each party will be re-paid their original contribution and thereafter the proceeds divided equally or in such proportions as they declare.
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