Question: ‘There have been a number of articles in the press recently where the terms ‘tenants in common’ and ‘joint tenants’ have been used. It seems that these phrases are pretty crucial when sharing possession of your home with another party, whether it be a spouse, co-habitee or simply a friend. Do you have any advice on how to make the differences clear to clients?
Eddie answers: Understanding the difference between holding property as ‘joint tenants’ or ‘tenants in common’ is, indeed, very important in order to ensure that the right option is in place for clients sharing possession of a property. There are some straightforward considerations to take into account in terms of deciding which of these agreements to put in place.
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Married or co-habiting
The majority of married couples choose to purchase a property as joint tenants. Where joint tenants are concerned, when one party dies, the co-owner automatically inherits their share of the property so, in the case of the majority of married couples, this makes sense. If a married couple, as joint tenants, were to divorce, the initial presumption would be that both parties were entitled to 50 per cent of the property.
There may, however, be circumstances whereby a married couple would prefer for their share of the property to pass on to their estate, for example to maximise inheritance tax allowances. In this case, they would choose to be tenants in common, meaning that each person can pass their share on to their own estate when they die through a will – something which a joint tenant would not be able to do. Of course, a number of factors will influence which of these options is the most appropriate in each individual case.
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The purchase of a property as joint tenants can be arranged in the case of co-habiting couples in a civil partnership, but it is more usual for them to hold the property as tenants in common under these circumstances. However, a recent ruling demonstrates that simply agreeing to buy as tenants in common is not in itself sufficient to provide the required level of protection for each party should the relationship break down.
Dehra Dowden shared a home with her partner Barry Stack for 27 years and they had four children together. Although Mr Stack claimed an equal share in the home, 65 per cent of its value was awarded to Ms Dowden, as her claim that she had paid the majority of the costs, such as the initial deposit and mortgage payments, was upheld by the Lords.
This sends out the very clear message to co-habiting couples that shares in the property should be agreed when they initially undertake the property as tenants in common. If this agreement is drawn up when relations are amicable, such as when the property is first purchased, there can be little room for dispute later on, when relations between the two parties might be more strained.
Co-buying
For a significant number of first-time buyers, home ownership has become a fairly unrealistic proposition without considerable financial help from another source. As a result, many young people are now considering teaming up with friends, relatives and, in some cases, even complete strangers in order to take that first step on the housing ladder.
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No matter what the relationship with the chosen home buying partner, it is essential to draw up an unequivocal contract as part of the agreement to buy as tenants in common, which reflects the expectations of all parties. In terms of setting down the legalities of the agreement, the following checklist provides a good starting point for what it might include:
- The amount of money contributed by each party to the deposit.
- The conditions of future sale, including the stipulation of how much time should pass before either party can seriously broach the subject of the sale of the property.
- How big a stake each person owns in the property.
- The systems or policies that should be set up by each individual to cover the mortgage payments in the event of either party having financial difficulties.
- Agreement on the use of the property – for example, is it being bought for habitation solely by the co-buyers, as a rental property or is this flexible?
- Clauses regarding what will happen in the event of illness/death of one of the parties involved. This also means that both parties would have to make a will, disclosing some of its contents to their co-buyer.
