Setting up home with a loved one or buying an investment property can be an exciting time. Nobody wants to consider what happens to the property or your interest if the relationship breaks down or what happens when a co-owner dies. It is important when buying a property you consider not only the short term investment but your long term wishes.
Before you buy a property you need to make a decision as to how you intend to hold the property. A property can be held as Joint Tenants or Tenants in Common. Your Lawyer will explain to you what the difference is between Joint Tenants and Tenants in Common, what is involved and what will happen to the property when a co-owner dies or if the relationship breaks down.
Your Lawyer will ask you before you complete your transaction how you wish to hold the property. You therefore need to consider your position as part of the house buying process.
What’s the difference between Joint Tenants and Tenants in Common?
When you own a property as Joint Tenants, each co-owner owns the whole of the property and neither owner has a specific or identifiable share.
If you sell the property, you are each entitled to half the sale proceeds regardless of how much you each contributed to the purchase price or to the mortgage repayments. Neither co-owner has a separate share in the property that can be sold.
When you die, the surviving co-owner will automatically own the whole of the property, regardless of any wishes you may have made in your Will regarding the property. This is called the Right of Survivorship.
Married couples will usually hold a property as Joint Tenants as they may wish to leave the property to each other when they die. They may also choose to make Mirror Wills to reflect and protect their position on death.
Tenants in Common
If you co-own a property as Tenants in Common, each co-owner owns a specific share of the property. You will both agree what this percentage is at the time you purchase the property, this can be 50% each or held in unequal shares. Unmarried couples, couples with children from previous relationships and investors in property will usually own a property as Tenants in Common.
As you each own a separate share in the property you are entitled to leave your individual share to your chosen beneficiaries in your Will. If you do not have a Will when you die, your share will pass to your nearest living blood relatives according to the Rules of Intestacy. It is important when buying a property to make a Will or update an existing Will to reflect your wishes.
People who have been previously married and wish to protect inheritance to their children from a previous relationship may decide to own a property as Tenants in Common. Upon death their interest can be left to their children under the terms of their Will. This can mean on death the surviving party will need to consider ‘buying out’ the estate to remain residing in the property or the house could be sold to release the money. Alternatively, you may wish the surviving party to live in the property until their death at which point the property will be sold. Your Will writer will discuss your requirements with you as part of your Will review.
You may also wish to hold the property as Tenants in Common if one party has contributed more than the other in respect of buying the property, this could be deposit funds or a lump sum therefore reducing the amount of a required mortgage. By holding the property as Tenants in Common, if the relationship breaks down the party who provided the majority of funds could recover their percentage once the mortgage has been paid together with any other associated costs such as estate agents fees. This will need to be agreed between all parties and formally recorded.
By holding the property as Tenants in Common you can use your Will to leave your share of the property into a Trust so that it is ring-fenced. This enables your surviving spouse to benefit from your share of the property but it’s protected if the surviving spouse is liable to pay care home fees in the future.
When the property is held as Tenants in Common and registered at the Land Registry, a Form A Restriction will be placed on the Title to reflect there is a Trust in place and protect it. The Land Registry will not record the details of the Declaration of Trust on the register.
Ask Yourself the Following…
Consider the questions and answers below, speak to your Lawyer who will be able to provide further advice before you complete your purchase:
- Do you both have up to date Wills that record your wishes?
- How can you protect yourselves should the relationship break down? Have you considered a Co-habitation Agreement to protect your interests?
- Are you married and want to leave your interest to your partner upon death?
- Have you both contributed the same amount to buy the property and will you contribute the same amount to pay the mortgage etc?
- Do you have children from a previous relationship that you want to inherit all or part of your estate?
Recording Your Wishes
It is important when buying a property you consider all options. Not only what will happen upon death but how you can protect yourself should a relationship breakdown. It will be necessary to formally agree and record how you wish to hold the property when you purchase.
Once you have agreed how you wish to hold the property you should advise your Lawyer before completion. Your Lawyer will consider your circumstances and advise you of the best way to protect your interest, this may involve:
- A Co-habitation Agreement – This will reflect your agreement prior to purchasing the property. It will record how you have contributed towards the purchase and in the event of a relationship break up how you have agreed the property and any other assets will be divided.
- Review your current Wills – You should ensure your Wills are reviewed and updated when you buy a property. Ensure your Will reflects your wishes on death and you understand who will receive your interest in the property.
Declaration of Trust – Your Lawyer will consider drafting a Declaration of Trust which will record your wishes, how you hold the property, who has contributed towards the purchase price and any other requirements. It is important to formally record the agreement to avoid any potential disputes in the future.
For initial advice about making a Co-habitation Agreement call our Family Law Solicitors on 01618558357 or request a call from Family Law.
For initial advice about making a Will call our Will writers on 01618558360 or request a call from Wills.
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