Joint tenants or tenants in common? What you need to know
With property prices remaining high, buying a home with family members or friends can often be the only practical way of getting onto the property ladder. There are plenty of advantages. The deposit will be lower, as will the ongoing costs of ownership such as mortgage repayments, council tax and utility bills.
If you are obtaining a mortgage, you’ll need to take appropriate financial advice. One of the most important steps you’ll need to take is to ensure that you have the correct legal agreements in place in order to avoid problems later on. This means deciding what you all want to get out of the venture, including what happens if one of you wants to sell their share at some point in the future.
You will also need to get advice on how you hold your share of the property. Legally, there are two types of joint ownership – Joint Tenancy or Tenancy in Common.
Married couples or those in civil partnerships tend to hold property as joint tenants, as the property automatically passes to the other on the first death. In a joint tenancy, each person owns the whole property, regardless of what they individually contributed in terms of a deposit. If one of you dies, the property automatically passes to the other joint tenant(s). No more than four people can own a property as joint tenants at any one time.
Tenants in Common
Unmarried couples, friends, or those who contribute unequal amounts often choose to hold property as tenants in common and own a predetermined share which could be 50/50, but could equally be any other percentage split, depending on how many people are involved and what is agreed between the parties at the outset. If one of you dies, the deceased’s share will not automatically go to the survivor(s). Instead the deceased’s will determines who takes their share; if no will exists, then the laws of intestacy will apply.
Where the contributions are unequal, it’s often considered wise to draw up a Declaration of Trust. This is a document which is legally binding and records how much people have contributed and what their share would be if the property is sold. That way, each of you will know in advance how much of the proceeds you will receive, which can help avoid future conflict.
Getting it right from the start
It’s important to recognise that purchasing a property together is more difficult to dissolve than simply renting a home with friends. Whilst purchasing a property with other people in this way can have many advantages, you need to be clear about your legal position from the outset.
Owning a property jointly can be highly beneficial for all involved; taking advice before you embark on the venture can ensure all parties are happy with the arrangement, and that you have the right agreements in place, such as a Declaration of Trust.