Shared ownership: A Current Explanation

September 18, 2017

Often when purchasing a property, we do not do it alone. Our reasons may differ, for example a couple may wish to start a family or business partners may seek to make an investment but the law that governs how we recognise ownership of property stays the same.

Explaining property ownership to a client can be a complex task for a solicitor, but essentially there are two types, tenants in common or joint tenants. Also in explaining it we must separate what we call ‘law’ and ‘equity’.

Tenants in Common:

Under a tenancy in common the individuals take separate shares of the property at Equity but the same level at Law. Their individual share of the property is usually based on the amount put towards the purchase price and must importantly their share is distinct. This means that tenants in common can sell on their share of the property and leave it in their will. So for example if we had two clients who wanted to buy a property as tenants in common and the purchase price of the property was £100,000. Each client would have to put forward £50,000 to gain a 50% share of property ownership. What they do with this 50% is then entirely up to them. Remember at Law both the clients own the whole of the property, it is only at Equity that their share is split.

Of course clients may not always enter as equals with 50% ownership each. To resolve the obvious problems this could cause a declaration of trust can be prepared to reflect this and protect each parties interest in the property.
This form of ownership is less common immediately in residential property as often the clients will not be thinking of splitting their share of the family home when purchasing. But over time when drawing up wills they may wish to leave a share to a family member and as such will need to create a tenancy in common to do this.

One of the risks involved with being a tenant in common is that other tenant has complete control of their ‘share’ but of course you both own the property. This means therefore that problems which the other tenant runs into may become yours. For instance, imagine a situation where one tenant becomes bankrupt, their share of the property would need to be sold to pay off their debt. This would inevitably result in the property being sold perhaps against your wishes.

Joint Tenancy:

This is the more common situation in general for property ownership. Here the clients no matter what their contribution to the purchase price will ‘wholly own the whole’. Simply put they own the whole of the property at Law and at Equity together. There are no shares or splits of the property whatsoever. What is interesting here is that if one person passes away their ownership ‘evaporates’ and passes on to the other owner. Joint tenants cannot leave their ‘share’ to a son or daughter in their individual wills as there are none to give. However, those in a joint tenancy can decided later to sever and create a tenancy in common. This frequently happens in the event of a matrimonial/relationship breakdown or one party has children of their own. The severing parties share can then be left to these children in their will.

Of course there are benefits from being joint tenants that often go in line with the client’s reasons for ownership. For instance, joint owners cannot legally take out a loan on the property without consent of the other, they cannot be forced to leave unless there is court order and the property cannot be sold without your prior agreement.

Of course the main disadvantage of a joint tenancy is that you cannot take control of what is yours without the consent of the other party(s) as remember you own the property as one entity. Again as previously stated you cannot leave any share of the property in your will.

The information provided in all of our blogs reflects only a narrative of some elements to consider on the topic. The blogs do not contain considered legal advice and should not be relied upon as advice. Please see our website terms and conditions for full details of our disclaimer. If you are interested in obtaining advice, please contact one of our lawyers who will be happy and able to advise you on your own particular circumstances.