When two or more people buy a property together, it is important to understand how the property is owned and what each person’s rights are. This is especially important where one person has paid more towards the deposit, mortgage, renovations or household expenses.
In England and Wales, jointly owned property is usually held in one of two ways: as joint tenants or as tenants in common. The distinction is significant because it affects ownership shares, what happens if one owner dies, and how sale proceeds are divided.
Legal Ownership and Beneficial Ownership
There are two key concepts:
- Legal ownership
This refers to the names registered at HM Land Registry as the legal owners of the property. Legal owners have the power to deal with the property, for example by selling it. - Beneficial ownership
This refers to the financial interest in the property, in other words, who is entitled to the equity or sale proceeds.
Where a property is jointly owned, the legal owners may appear on the title together, but the beneficial ownership may be held either equally or in unequal shares.
Joint Tenants
If you own a property as joint tenants, each owner is treated as owning the whole property together and there are no defined individual shares.
The main features of joint tenancy are:
- each owner has an equal right to occupy and use the whole property;
- the owners are generally treated as having equal beneficial interests;
- any profit or loss on sale is usually shared equally;
- the property automatically passes to the surviving owner or owners if one owner dies;
- a joint tenant cannot leave their share of the property to someone else in their will.
This automatic transfer on death is known as the right of survivorship. It applies regardless of whether the owners are married, in a civil partnership, cohabiting, siblings, relatives or friends. It also overrides the terms of a will.
For example, if two cohabiting partners own a property as joint tenants and one dies, the deceased person’s interest in the property automatically passes to the surviving owner. It does not pass under the deceased person’s will or intestacy.
Joint tenancy is often used by married couples and civil partners, but it is not always suitable, particularly where the parties have contributed unequal amounts or have children from previous relationships.
Tenants in Common
If you own a property as tenants in common, each owner has a separate identifiable share in the property. Those shares may be equal or unequal.
For example, the property may be owned:
- 50:50;
- 60:40;
- 75:25; or
- in any other agreed proportions.
The main features of tenancy in common are:
- each owner has a defined beneficial share;
- the shares can reflect each person’s financial contribution;
- an owner’s share does not automatically pass to the other owner on death;
- each owner can leave their share to someone in their will;
- the arrangement can be recorded in a Declaration of Trust.
Tenants in common do not have a right of survivorship meaning, the deceased owner’s share passes under their will. If there is no will, it passes under the intestacy rules.
This is particularly important for unmarried couples. An unmarried partner does not automatically inherit under the intestacy rules. Therefore, if cohabiting partners own a property as tenants in common and one dies without a will, the surviving partner may not inherit the deceased partner’s share.
Tenancy in common is often more appropriate where one person has contributed more towards the deposit, mortgage payments, renovations or other property-related costs.
Why a Declaration of Trust Is Important
A Declaration of Trust is a document which records how the beneficial ownership of the property is held. It can set out each person’s share and what should happen if the property is sold.
This is particularly important where the parties have contributed unequally.
For example, if a property is purchased for £300,000 and Person A contributes £35,000 towards the deposit while Person B contributes nothing, the Declaration of Trust can state that Person A is to recover the first £35,000 from the net sale proceeds before the remaining equity is divided equally.
A Declaration of Trust may also deal with:
- unequal ownership shares;
- repayment of deposits;
- how mortgage payments are to be treated;
- how renovation or improvement costs are to be credited;
- what happens if one owner wants to sell and the other does not;
- whether one owner has the option to buy out the other;
- how sale proceeds will be divided.
Without a Declaration of Trust, disputes can arise over whether a person who paid more is entitled to receive more. The starting point may depend on how the property is registered and what evidence exists about the parties’ intentions.
What If I Paid More Than the Other Owner?
Paying more towards a jointly owned property does not always mean that you will automatically receive a larger share when the property is sold.
The position depends on several factors. If the property is held as joint tenants, the usual position is that the equity is shared equally, even if one party contributed more. However, this can be disputed where there is evidence that the parties intended something different.
If the property is held as tenants in common, the sale proceeds will usually be divided according to the agreed shares or the Declaration of Trust.
Mortgage Liability
It is also important to distinguish between ownership shares and mortgage liability.
Where two or more people are named on the mortgage, they are usually jointly and severally liable for the whole mortgage debt. This means the lender can pursue any one of the borrowers for the full amount due, not just their “share”.
For example, even if two owners agree between themselves that they will each pay 50% of the mortgage, the lender may still require one borrower to pay the full monthly payment if the other stops contributing.
A private agreement between co-owners does not normally bind the mortgage lender.
Conclusion
Joint ownership can be straightforward where both owners contribute equally and intend to share everything equally. However, problems often arise where one person pays more than the other, where relationships break down, or where one owner dies.
The key issue is whether the property is held as joint tenants or tenants in common. Joint tenants usually share the property equally and benefit from the right of survivorship. Tenants in common can own unequal shares and can leave their share by will.
Where contributions are unequal, a properly drafted Declaration of Trust is one of the clearest ways to record what each person owns and how the proceeds should be divided if the property is sold.
