Property co-ownership comes in various guises, depending on your circumstances. There are two types of beneficial joint tenants. Do you understand the difference? Are you clear about which joint tenant agreement is best for your situation? This guide is designed to clarify exactly what these terms mean. Here’s everything you need to know about joint property ownership, to help you make the best decisions around buying, selling or letting.
What is a Joint Tenancy or Tenancy in Common?
The joint tenancy type of ownership, also called tenancy in common, is simply a type of joint property ownership. You might be buying a property with a friend or buying a property with a partner, for example. It’s possible to change the kind of ownership, either from a joint tenants basis to tenants in common, in the case of a divorce or separation, or at other times when you want to leave your share of the property to someone else.
Co owning a house in this way means you can change the agreement from tenants in common to joint tenants, something you might do if you get married and both of you want to enjoy equal rights to the entire property. Interestingly you can make the change at no charge. You can even change property ownership from sole ownership to tenants in common or joint tenants, something called ‘transferring ownership’. You might transfer the ownership, for example, because you want to add your partner as a second joint owner.
What is Joint Tenancy?
Buying a property with a friend under a joint tenancy, also called ‘beneficial joint tenants’, gives both of you equal rights to the whole property. With this type of home ownership, a maximum of four people can share ownership joint tenants. If one of you dies and they haven’t broken the joint tenancy before their death, the property passes to the other owner or owners automatically. But you can’t pass on your ownership of the property in your Will, something called ‘the right of survivorship’. The right of survivorship takes priority over your Will. You can break a joint tenancy with a written agreement at any time, but if you can’t agree terms with the rest of the joint tenants you’ll need a court order.
What is Tenancy in Common?
Buying a property with a partner as tenants in common means all owners have equal rights to the entire property, but each person owns a specific proportion of it. If you die your share doesn’t automatically go to the other tenants. Unlike joint tenancy, you can leave your share of the property to someone else in your Will. The property might be owned equally, or one owner might have a larger share than the rest. It’s up to you what proportionate interest each owner has. If an owner dies, their proportionate interest is passed on according to the deceased’s wishes, and if there isn’t a Will the UK’s intestacy laws come into play.
Every tenancy in common needs a trust deed, which is created by a solicitor. It formalises each person’s share, useful if there’s ever a dispute over ownership and vital if someone dies.
Differences Between Joint Tenancy and Tenancy in Common
So what are the key differences between Joint Tenancy and Tenancy in Common property ownership agreements?
- Joint tenants both own the whole property, tenants in common own a percentage of it
- Joint tenancy automatically passes to the other owners if one owner dies, tenancy in common can be passed down in a Will
- Joint tenants need one mortgage, theoretically tenants in common can have separate mortgages. In real life most lenders will expect you to have one joint mortgage
- Both types of joint ownership mean everyone involved has to agree if someone wants to sell up
- Partners and spouses tend to choose joint tenancy, while friends or relatives tend to go for tenancy in common
There are also many similarities between the two types of agreement.
- Up to four people can be the legal owners of a property
- Most lenders insist on joint mortgages for a property whatever the type of agreement
- In both cases all potential owners can pool their money to make up a good-sized deposit – which means access to a wider choice of mortgage deals as well as a bigger loan
- All the mortgage applicants are responsible for making monthly repayments
- Joint ownership affects everyone’s credit rating
- All the owners have to agree to either sell or re-mortgage
- Bad credit issues from one applicant can affect the entire mortgage application
Joint Tenants vs Tenants in Common Pros and Cons
What are the advantages and disadvantages of each property co-ownership approach?
Joint tenants own the property equally, ideal when you’re buying with a relative or partner. It’s a simple way to enjoy beneficial ownership so comes with lower legal fees. Because there’s no joint tenancy agreement, the documents are simple too. The disadvantage is this doesn’t allow unequal ownership. If one of two owners has paid 90% of the costs they still own just 50% of the property.
Selling requires agreement from everyone who’s a joint tenant. The transfer needs to be signed by everyone. If everyone can’t come to an agreement a court order might be the only solution. The proceeds from the sale are split equally and the right of survivorship applies, a key difference between joint tenants and tenants in common. The property automatically goes to the surviving people and is entirely owned by them.
The pitfalls of tenants in common? Tenants in common can have a different ownership share, a good idea when you’re not buying with someone you have a close relationship with or when you’re buying as an investment. The share of ownership is defined in proportion to their contributions, which means you don’t all have an equal interest in the property. A beneficial share is defined for each person based on what they can put into the property, things like their contribution to the deposit or the mortgage payments. There are no rules about the size of ownership shares – it’s entirely up to you.
A small ownership share doesn’t mean a tenant in common has limited rights. Even if you only own a small share you have the right to access the whole property. It’s a good idea to set up a Deed of Trust, which isn’t a legal requirement but makes sense if you want to ensure ownership transparency. It’s also useful if the relationship between the property owners goes wrong. This Deed, which is also called a Declaration of Trust, lays out everyone’s financial interests and responsibilities.
Everybody needs to agree to a sale and sign the transfer deed but you can include an exit clause in your Deed of Trust, which makes it easier to force a sale if everyone can’t agree. The proceeds are divided between the co-owners based on each person’s percentage share.
Tenants in common can sell their share to anyone they like. The property doesn’t automatically go to the survivors when there’s a tenants in common death, it goes to their Estate, and that’s where the proceeds of the sale will go after the death. If tenants in common want to transfer a share of the property when they die, it’s important to make that clear in a Will.
Joint tenancy versus tenancy in common
Joint tenancy and tenancy in common agreements can be confusing. Now you know which is which and what each choice involves, you’ll be able to confidently make a good decision about which joint tenancy agreement type suits your circumstances best.