Co-Ownership as Joint Tenants and Tenants in Common and the Need for Declaration of Trust
The November 2011 House of Lords case on this subject again highlights the need for co-owners of property to receive expert legal advice to avoid problems.
There are two basic ways of owning a Property in more than one name:-
- Beneficial joint tenants (the survivor automatically acquiring the whole of the Property by survivorship on the death of the co-owner)
- Tenants in common in separate shares. The shares do not pass on death to the surviving owner but instead pass by the terms of their Will or if no Will by the rules of intestacy
Sometimes people believe they wish to hold the property as beneficial joint tenants but on closer expert analysis tenants in common is more suitable. Sometimes beneficial joint tenants can be the most suitable (provided all parties understand the ramifications) but when circumstances change it is in one parties interest or sometimes both parties interest for the joint tenancy to be severed into tenants in common in separate shares.
Where tenants in common is chosen it is essential that a Declaration of Trust is drawn up between the parties that should deal with all appropriate issues which may include:-
- Contributions to the purchase price or deposit;
- The responsibility of the co-owners for mortgage repayments and other outgoings;
- Responsibility for repair and maintenance and insurance;
- What will happen if there is a change in contributions to the mortgage (other than the existing mortgage) over the property without the written consent of the other party);
- How the trust(s) relating to the property can be brought to an end by either party (eg. by written notice) and how the sale will proceed after such a notice;
- A right for one party to purchase the other party’s share at current market value, how this right can be invoked (eg. written notice) and how the market value is to be determined;
- How the net sale proceeds are to be determined (eg. after the deduction of any outstanding mortgage, legal fees, agents’ commission, valuers’ fees, etc);
- Whether a co-owner should be paid a sum before the net sale proceeds are divided (eg. a lump sum or percentage of the sale price to reflect their greater contribution);
- Whether in relation to the net proceeds of sale, credit should be given to any co-owner in respect of mortgage repayments;
- How the net proceeds are to be divided (eg. in equal shares, 40:60, 25:75 etc);
- What will happen if the property falls into negative equity;
There are other important differences between owning a property as Joint Tenants or Tenants in Common. Owning as Tenants in Common (which should be backed up by a Declaration of Trust setting out the respective shares and details of the agreement between you) can only be changed later by mutual consent.
Joint Tenants however should be aware that either co-owner can end that arrangement at any time simply by serving a Notice of Severance; moreover if one of them becomes bankrupt then that will automatically sever the joint tenancy; both these occurrences mean that the other will not inherit the whole of the property by survivorship.
We are highly experienced with regard to all these matters and will with the benefit of your instructions and our advice efficiently put into place documents that will protect you. We are alert to all the relevant issues including, but not restricted to, conflicts of interest/undue influence/independent legal advice. Our documentation accurately setting out all arrangements both existing and reasonably foreseeable reduces dramatically the incidence of potential disputes between the parties resulting from misunderstandings.