Joint tenancies – or tenants in common?

by Liz Talbot

Difficulties can be encountered when acting in the purchase of a property by more than one owner, whether they are married or not. Issues can arise over the contributions of each party and their intentions as to ownership. To avoid uncertainty and even dispute in the future, it is therefore important to get these issues right at the time of purchase.

One way is to have a separate Declaration of Trust entered into between the parties. This will set out their respective shares or contributions, and determine the proportions in which any outgoings (such as mortgage payments and so on) might be discharged. It should also provide a calculation for how any equity (profit) would be divided up on a sale. It is of course not always practical or even cost effective to have such a document on each purchase, so a decision would normally be made whether or not the parties wish to own as joint tenants or as tenants in common.

Ownership as joint tenants is the form of ownership whereby the property would pass automatically on the death of one of the owners to the other. No other documentation is required; it is a transfer by operation of law.

A slightly more complex issue arises if the parties wish to own as tenants in common. This is the form of ownership where, although both of the parties own the property legally, they own it upon trust for themselves in certain proportions or shares. 

The following examples will show how differences in the intentions of the parties, if clearly discussed with the solicitor, can make a difference to the allocated shares on a subsequent sale.

Imagine that an unmarried couple, Jenny and Mark, buy a property at £100,000, paid for with a mortgage of £60,000 which they agree to repay equally. The balance being provided by Jenny is £30,000. Mark contributes £10,000.

Let us look at four different formulas for tenants in common.

 

  1. Stakes back and balance 50:50
  2. 60:40 (original stakes and half mortgage debt)
  3. 75:25 (proportions of cash contributions)
  4. Cash portions (40% value of which Jenny has 75% and Mark 25%)

 

Now let us apply these formulas to an eventual sale at £200,000 with the mortgage debt the same.

 

1.         Stakes back and balance 50:50

 

£200K less the £60K mortgage gives a balance £140K, of which Jenny gets £30K and Mark £10K. Balance of £100K is split 50:50. Jenny ends up with £80K and Mark, £60K.

 

2.        60:40

 

£200K less the £60K mortgage. The balance is £140K, of which Jenny gets £84K and Mark £56K.

 

3.         75:25

 

£200K less the £60K mortgage. The balance is £140K, of which Jenny gets £105K and Mark £35K.

 

4.         Cash portions

  • Cash is 40% of value of which Jenny has 75% and Mark 25%.  Balance is split equally.
  • £200K sale. The cash portion is 40% of the total (£80K), of which Jenny gets 75% i.e. £60K and Mark £20K. The balance is £120K, out of which the mortgage must be repaid. This leaves £60K to be divided equally. Jenny totals £90K and Mark £50K.

 

No one likes to contemplate relationships breaking down but, as you can see, the allocated shares are quite different in each example. That is why these are matters which need to be fully discussed and addressed at the outset of the purchase. Discussion of the circumstances with your solicitor will enable them to correctly and exactly identify what each party wants.

 

© Bonell & Co 2011. This article was published in May 2011 as part of the Resources section of our website.

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