When purchasing a property, you’ll be asked to choose between holding it as joint tenants or tenants in common. Before deciding which option best suits your circumstances, it’s crucial to fully understand the differences between the two.
Joint Tenants
All equity in the property is jointly owned by the owners. If one owner passes away, their share automatically transfers to the surviving owner. In cases where one owner requires residential care and lacks other cash assets to cover the costs, the council can make a claim against the entire equity in the property.
Tenants in Common
The equity in the property is held by the owners as individual shares, whether those shares are equal or unequal. If one owner passes away, their share of the property passes according to their will or under intestacy rules. In cases where one owner requires residential care and lacks other cash assets to cover the costs, the council can only claim against that owner’s share of the equity.
Choosing to hold a property as tenants in common is important if you do not want your co-owner to automatically inherit your interest in the property. This is particularly relevant for unmarried couples, married couples with children from previous relationships, and when property is owned by a partnership.
If you’re purchasing a property with someone else, it’s possible that one party may contribute a larger deposit, or family members might assist with deposits. In such cases, it’s common for parties to document their unequal shares either in the transfer deed or in a declaration of equity.
A declaration of equity, also known as a declaration of trust, is a legal document executed as a deed that we can draft. It outlines each party’s contribution to the purchase and specifies how the net proceeds will be divided upon the property’s sale. You can even include provisions stating that you hold your interest in the property for someone else’s benefit.
A declaration of equity can be tailored to your specific circumstances. For example, it could specify repayment of a fixed sum to one party with the balance shared equally, or it could detail the percentage contributions of each party. If individual shares in the property change over time, a new declaration of equity must be recorded to reflect these changes; otherwise, the terms of the original declaration of equity will prevail.
Regardless of how you hold equity in your property, it’s crucial to ensure that you have an up-to-date corresponding will. A provision in a will directing your interest in a property to pass to your children is ineffective if you own it as joint tenants with your spouse. Similarly, a provision in a will directing your interest in a property to pass to your co-owner is ineffective if you’ve already entered into a declaration of equity stating that you hold your share for someone else’s benefit.
When deciding how to hold equity in a property, provide your solicitor with comprehensive details of your circumstances so they can offer the best advice tailored to you.
To speak with an experienced property solicitor, please contact the team at DLS Solicitors, who will be happy to assist.
