Buying a house is probably the biggest purchase that most of us will ever make. In days gone by, most houses were either bought by a couple or by parents for their children. However, with the cost of property skyrocketing in recent years and with the rise in the number of blended families, there are now many different groups of people banding together to purchase a property. As such, now more than ever, it is vitally important that all potential purchasers enter into the purchase under an arrangement that best suits their own particular situation.
The most important decision to make is whether to buy the property as joint tenants or a tenant in common. While joint tenants and tenants in common share many similarities, there are several very important differences between them which it is imperative you understand
What is a joint tenancy?
A joint tenancy is where two more people purchase a property together and do not have or want defined shares in the property. In other words, no matter how many people are listed on the property title, everyone owns a proportionate undivided share of the whole property. The most important aspect of being a joint tenant is that when one of the joint tenants dies, their share automatically passes to the other joint tenants regardless of what the deceased has stipulated in their will. This is called the ‘right of survivorship’. Another consideration is that as you do not possess an individual share, any work or transaction involving the property requires the agreement of all the other joint tenants.
This type of tenancy is most typical for married couples or couples in a long-term relationship.
It is possible for a joint owner to end a joint tenancy and in some cases, it may be beneficial to do so. If a joint tenancy is severed, the owners becomes tenants in common in equal shares.
What is a tenancy in common?
Unlike a joint tenancy, a tenancy in common is where two or more people purchase a property together but in equal or possibly unequal shares. For example, if Party A to a purchase contributed 25% and Party B contributed 75%, they could choose to own the property as tenants in common to reflect their individual shares i.e. Party A would own a quarter share and Party B would own a three quarter share of the property.
As each owner has their own individual share, any of the owners can transfer or mortgage their share of the property without the consent of the other owners. In addition, there is no ‘right of survivorship’ and therefore, when an owner dies, his or her share passes in accordance with their will. (If there is no will, the share passes to those entitled to inherit under the law of intestacy). Given this consideration, it is vitally important that you have a will and that it is up to date. Also given that this arrangement may be entered into by parties who have contributed unequal amounts, you should also consider a property sharing agreement that reflects the ownership of the property and details the obligations and expectations on each party owning a share in the property.
This ownership structure is being used more frequently nowadays where the buyers may be in a de facto relationship following a separation of a previous relationship, be business partners or are buying as friends or with other family members.
As can be seen, the decision about whether to buy as a joint tenant or a tenant in common can have huge consequences dependent on your particular situation. As such, it is imperative that before you enter into a purchase with another party, you should discuss your individual circumstances with your lawyer.
Our experienced team of property lawyers at Wakefields Lawyers has years of experience advising new property owners on the arrangement that suits them best so if you would like some advice, please contact firstname.lastname@example.org or 0800 LEGAL1