Not all property-buying partnerships look the same. And nor should they; this is 2019 not 1959. It’s common to choose to buy with a spouse or partner, but more and more people are making the decision to get on the property ladder with friends or relatives. It’s actually legally possible for a group of up to four people to jointly own a private property.
Of course, you don’t need us to tell you that buying a property with up to three friends will be a very different proposition than buying a property with a spouse. In order to reflect this, there are different legal options for you to choose from when it comes to the final paperwork in terms of howyou jointly own the property.
This is a formality that often doesn’t come up until the moment you meet your solicitor to get busy with a biro and sign all the purchase documents. If you want our advice (which we’ll assume you do for the purpose of this blog post) this is a decision that needs to be carefully considered much earlier in the process.
What are the different types of joint ownership?
There are two main forms of joint ownership. The first is beneficial joint ownership (which is sometimes just referred to simply as joint ownership). The second is tenants in common.
Generally speaking, committed couples often choose beneficial joint ownership, while friends or relatives often choose tenants in common. However, there are no rules on who has to choose which option; it’s totally up to you and your property buying partners as to which you feel more comfortable with.
We suggest talking it through with someone who thoroughly understands the legal argy-bargy of the decision. Your conveyancing solicitor is likely to be the best candidate for this.
What is beneficial joint ownership?
A partnership would choose the beneficial joint ownership option if they want to own the property as one. In this type of agreement, all parties share an interest in 100% of the property. So the property isn’t half yours and half theirs… you both own the whole of it jointly.
It may seem like we’re getting into pointless semantics here, but the clearest way to illustrate why this matters is by talking about our favourite morbid topic: your will.
If you own a property jointly under beneficial joint ownership, you do not have the right to pass on your share of the property in a will. Rather, if something unfortunate were to befall you, 100% ownership of the property would remain with the surviving member(s) of the partnership.
Many spouses or partners choose this option as they want to own the property as a couple, not as two individuals. If you’ve already gone in for the whole ‘till death do us part’ thing, this option is likely to make the most sense.
However, if you have different priorities about who should benefit from your estate after your death, you may want to consider other options. For example, if you have children from a previous relationship that you would want to leave your share of the property to instead of your partner, beneficial joint ownership wouldn’t allow you to do this.
We hope it also goes without saying that this may not be the right choice for you if you’re not sure you’re in the relationship for the long haul! It’s more straight-forward to manage a property sale in the event of a separation or divorce if it’s owned as tenants in common, especially if one party contributed a significantly larger part of the deposit than the other.
If the property is being purchased as a second home, there are tax considerations to keep in mind. If the property is held ‘as one’ by beneficial joint owners, then you will only get the benefit of one capital gains tax allowance. If the property is owned by two individuals as tenants in common, you will both get to utilise your £12,000 allowance.
What are tenants in common?
When you own a property as tenants in common, you own a clear percentage of the property. This doesn’t mean that one person owns the living room and the other the kitchen, but it does mean there are very clear legal boundaries as to who gets what in the event of a sale.
It also means that it is possible to leave your share of the property in your will to someone who isn’t the other joint owner. Though, if you dowant the other joint member to inherit, you’ll have to make sure this is formally recorded in your will.
One of the key benefits to being tenants in common is that you don’t have to own equal shares of the property. If you’re buying with a friend or a sibling and have a larger deposit to put down than they do, this can be legally reflected in the registry. This protects your interests when the property is sold in the future as each party will receive the correct proportion of the sale proceeds according to the percentage they own.
In cases where property is owned by tenants in common, it’s usual for the property registration to involve a legal document called a Deed of Trust. This sets out not only who owns what percentage of the property, but also a legal agreement on what would happen in the case of a relationship breakdown, a sale, or if one or more parties were unable to pay their share of the mortgage. Think of it as kind of a pre-nup for property purchases.
What if everything goes up the creek without a paddle?
The thing about human relationships is that they can be vulnerable to breakdown. Whether you’ve bought with your spouse, your partner, your best friend or your sister, sometimes things go wrong.
Whatever type of joint ownership you have, all parties will still need to agree if the property is to be sold. Tenants in common are not able to sell their share in the property separately to the rest of the property being sold, though your solicitor could help you come to an agreement for the remaining parties to buy out the share of the individual who wants to leave.
If you chose the beneficial joint ownership option with your partner, but then found down the line that things weren’t working out, there is a get out clause. It’s possible to apply for the type of ownership to be changed, and you generally won’t need to pay a fee. However, if you can’t get your partner to agree, you’ll have to serve them with notice to ‘sever’ your joint ownership. This can probably end up being just as gristly a process as it sounds.
In brighter thoughts, should you wish to change from being tenants in common to being beneficial joint owners, you can easily make this switch too. Some couples choose to do this after they get married or have children together.
How do these decisions become formalised?
The type of ownership you choose can very easily be formalised when you meet with your solicitor to sign documents relating to your purchase. The Jointly Owned Property Trust: Registration form (also called the JO form) records your decisions and ensures they are legally sound.
The JO is a (mercifully short!) form that details exactly how the property partnership owns the property. This can be a simple tick in a box if you want to own the property with beneficial joint ownership, or even as tenants in common with equal shares.
The form gets slightly more involved if you want to own the property as tenants in common with unequal shares or if you want to own the property in some new-fangled way we haven’t even thought of yet.
As always, it’s really important to get advice on these matters from a conveyancing solicitor you trust. They will be able to help you make sense of this sort of legal jargon and make sure your interests are fully protected, whatever should happen in the future.
Please do get in touch if you want to have a scintillating discussion about the benefits and disadvantages of each type of joint ownership, we’re always on hand to help.