Co-owning Property - Joint Tenants or Tenants in Common?

Whenever two or more people purchase property, they will be asked by the conveyancer whether they wish to do so as Joint Tenants or Tenants in Common. Often, they will be given a short explanation within a mound of other paperwork on which they are to base their decision. Few, at the time, will fully understand the differences and the significance of their decision when it comes to their estate planning.

What does it mean to be Joint Tenants?

Joint Tenants is largely established as the default position, and in terms of the legal title to a property, as registered with HM Land Registry, it is the only way of co-owning property. It automatically treats every owner as owning an equal share and will see the transfer of ownership on death occur via survivorship, rather than a person’s Will. This means that any attempt to gift an interest in a property co-owned as a joint tenant by Will is always going to fail when there is a surviving joint owner; they will automatically take the deceased owner’s share.

On many occasions, purchasers of property are simply buying property to hold on trust for themselves in equal shares and don’t wish to give any consideration to making specific provisions about their property in their Wills. In these instances, holding property as joint tenants is appropriate, but what if this is not the case?

HM Land Registry concerns itself only with the legal title. There will be times where the legal title does not reflect what the actual intentions of the owners are.

Accordingly, it is common for people to refer to a property’s beneficial title.

What does it mean to be Tenants in Common?

Tenants in Common is not a phrase you will see on a property’s registered title. Instead, it can be identified by the inclusion of the wording of a standard form A restriction:

‘No disposition by a sole proprietor of the registered estate (except a trust corporation) under which capital money arises is to be registered unless authorised by an order of the court.’

This restriction prevents the application of the automatic transfer to the surviving owners and allows the proprietary interest of a deceased owner to pass in accordance with their Will, opening the possibility for trust planning on death.

Whilst of fundamental importance, the wording of the restriction does not give enough information to enable anyone to identify what the terms of the beneficial title are. For example, two individuals named on the title as the owners with the restriction confirming tenants in common does nothing to show the percentage each owner has purchased.  Equally, it would not show clarity where property is held for the benefit of someone not named on the title (possibly a fifth owner or a child under the age of 18 who cannot be named on the title).

When a property is co-owned, there is a presumption of equal ownership. This presumption is rebuttable by evidence of intention. It is crucial therefore that where a property is co-owned but not on equal terms that clear evidence exists on the terms agreed by the owners. The best way of doing this is by preparing a declaration of trust.

How a Declaration of Trust can support property owners

If properly drafted, a declaration of trust details the value of each owner’s share at any given point in time. It allows for unequal deposit contributions and/or unequal mortgage repayments to be factored into the calculation of an owner’s share, so that when an owner dies or wishes to sell for whatever reason, it is clear who owns what of the sale proceeds. Additionally, a declaration of trust can include covenants or obligations on each party to ensure certain behaviours are maintained and also pre-emption rights. This means if one owner wanted to sell, the other owner(s) would have the first option to purchase from their share, usually within a certain time frame.

Declarations of trust are especially important where the owners are unmarried or where one party has benefitted from the ‘Bank of Mum and Dad’, who understandably want to ensure their investment is protected, should their child and their partner separate.

Declarations of trust can also be used in tax planning. If a second property produces rental income, it makes sense for that income to fall on the individual who pays the least amount of income tax. A declaration of trust can evidence a change in ownership from the presumed 50/50 to facilitate this.

In the absence of a declaration of trust or subsequent agreement, the terms of ownership would be objectively established. This would involve a judge looking at the behaviour of the parties in order to establish likely intention. This should be avoided as it lacks certainty and involves potentially significant legal fees.

If you would like to speak to a member of our Wealth Protection team regarding estate planning or the implementation of a declaration of trust, please contact 03333 058375 or email WealthProtection@psg-law.co.uk