If you are purchasing a property with your unmarried partner, your conveyancer will likely ask whether you wish to hold the property as ‘Joint Tenants’ or ‘Tenants in Common’. And it’s an important question.
Whilst both forms of ownership are joint (ie. both you and your partner are legal owners of the property), the legal implications of each on sale of the property, separation or relationship breakdown are huge. This article covers the differences and how you can protect your contribution to the property.
What does ‘Joint Tenants’ mean?
If you and your partner own a property as joint tenants, there is a presumption (unless otherwise confirmed in a legally binding deed) that you each have a 50% share in the property.
The most significant feature of a joint tenancy is what will happen to your share in the property if you die. In the unlikely event that you die, your share in the property will pass to the other joint owner by operation of law, outside of your estate, automatically.
This means that regardless of what your Will says, your share in the property will pass to your partner on your death (and vice versa).
If you and your partner are making uneven contributions to the property, either initially or post-purchase (by way of improvement works, for example), tenants in common will offer you more protection. Keep reading!
How is ‘Tenants in Common’ different to ‘Joint Tenants’?
If you and your partner own the property as Tenants in Common, you will each have a defined share in the property (usually in percentage terms). If you (or your partner) pass away, your share in the property will pass in accordance with the terms of your Will (or the rules of intestacy if you do not have a Will).
Be careful not to get caught in the common Tenants in Common ‘trap’. If you are contributing more to the initial purchase of the property, it is important to put in place a Declaration of Trust to protect your contribution. Without one, there is a real risk that your contribution will not be protected on relationship breakdown or death.
What happens if one of us dies and we are ‘Tenants in Common’?
Unless you have provided for the property to pass to your partner on your passing, this means they will likely have to make the difficult decision either to buy out your share in the property, or sell the property to enable your share to pass into your estate.
It is however possible to provide for your partner by way of a right to reside (for example 3, 6 or 12 months) if you pass away, giving them time to put in place arrangements for the way forward. The best way to put in place a right to reside is in a Cohabitation Agreement.
What if I am contributing more to the property?
If you are anticipating making subsequent contributions to the property, either by way of mortgage overpayments or improvements to the property, it is vital you seek specialist advice as to the bespoke Declaration of Trust you require. A basic Declaration of Trust (or even ticking the wrong box in your transfer document) could mean you are confined to your respective shares at the time of purchase and your further contributions are not protected.