When buying a property together with another person, you will need to consider your future relationship as co-owners. While it seems obvious that each of you will own a share of the property, legally this is not always the case. This article focuses on joint property ownership between two individuals but applies to situations where there are more owners.

Types of Ownership

Legal ownership of a property is considered a Trust of Land. As co-owners, there are two ways in which the property can be held:

• As Joint Tenants or

• As Tenants in Common

Both terms have a separate legal meaning. If you hold the property as Joint Tenants, you will both own the whole of the property. The property is not divided into shares and each of you is equally entitled to the whole property. As a result, you are unable to pass your ‘share’ to another person as there is no such share. On a future sale, it will be presumed that you both own the property equally, so the sale proceeds are divided in that manner. Furthermore, if one co-owner were to die, then the law operates to automatically pass ownership of the whole property to the survivor. This is known as the Right of Survivorship.

This may not be suitable for everyone, particularly if one of you has contributed more to the purchase price of the property or has received a substantial gift towards the purchase from your family. If you choose to hold the property as Tenants in Common, each of you will own a specified share of the property and have the flexibility to hold your respective interests in the property in unequal shares. This means that your share of the property can be passed on to another person, either during your lifetime or under the terms of your Will. You are also both treated separately for the purposes of Income and Capital Gains Tax.

Holding the property as Tenants in Common may also be appropriate if you have children from a previous relationship and wish for them to inherit your share of the property rather then it pass to your co-owner. If you decide that the property should be held in this manner, then all parties should sign a Declaration of Trust.

Declarations of Trust

A Declaration of Trust is a legal document which formalises the way in which you hold the property. It records that you hold the property as Tenants in Common and sets out each of your respective interest. If you were to separate, or the property is sold, the Declaration of Trust will be used to determine your entitlements to the sale proceeds from the property.

A Declaration of Trust can detail the amounts that each of you has contributed to the purchase price and can provide for these deposits to be repaid to each other on a future sale. It can also outline how you wish to split the remaining sale proceeds between you. If the intention is that one of you will contribute more towards the maintenance and upkeep of the property, then these practical arrangements regarding how expenses are met can also be included in the Declaration of Trust. This makes a Declaration of Trust very useful for setting out your respective interests in the property, as it can be used to set out other express terms that the parties may wish to include. Some commons terms included are agreements detailing how the property will be sold in the event that the parties are in disagreement.

Mortgages

You must take into consideration whether you will need to seek consent from a lender before a Declaration of Trust is completed. A mortgage is charged against the property as security for the loan. A lender will want to ensure that a Declaration of Trust does not affect their priority to receive the sale proceeds if the property is sold to repay the mortgage. Provisions may also be necessary to set out in what proportions each party contributes to the mortgage.

How We Can Help

Our Residential Property team can assist with your purchase and advise further on the types of ownership and the benefits and disadvantages of each.

If you are looking to purchase a property and would like our assistance and/or advice with the process, please get in touch with our Residential Property team.

This reflects the law at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought as appropriate in relation to a particular matter.