Tenants in Common
The phrase tenants in common refers to a situation where two or more people purchase a property. Where you co-own a property as tenants in common, each one of the owners will own a share in the property. In the case of two people this will be a 50% share each but it is possible to hold unequal shares such as 60% and 40% for example.
Tenants in common relates to two, three or even four or more people sharing ownership of a property. It must be noted however that although a group of people may be tenants in common, only four names can be listed on the legal title to the property. Although these terms refer to tenants it actually means ‘owner’ in this context.
The main difference between tenants in common and joint tenants is that a tenant in common can leave their share in the property to someone else when they pass away. In the absence of a will, the share will go with the estate of the deceased.
Where a property is co-owned, the owners are often referred to as being either joint tenants or tenants in common.
Where this agreement exists, the property will be owned collectively. This means that each person, or co-owner will own their own equal share in the property and they have the same rights as everyone else both during ownership and once the property is sold. Each person is also equally responsible for any liabilities which result from owning the property such as service charges in the case of leasehold.
If the owners decide to sell the property, the transfer document must be agreed and signed by all owners. If a signature is not obtained by all parties, the transfer is invalid. Sale monies can be paid as one lump sum or it can be divided between the owners, depending on your requirements. If one owner of the property dies, the remaining owners will automatically become owners of the property and they can dispose or keep the property as they wish.
This is perhaps the most common method used in the case of married couples or those who are in long term relationships. In these situations all parties often contribute to the ongoing costs of the property whether this is in terms of purchasing the property or through general maintenance, repair and keeping up the mortgage repayments.
Where a property is owned in this way it can only be sold after each joint tenant gives their permission. If there is a significant change in circumstances which results in one joint tenant wanting to dispose of their share and the other refuses, they will have to sever the joint tenancy. In this situation, the individual wishing to leave the joint tenancy will have to transfer to a new agreement known as a tenants in common.
Tenants in common
Where this agreement exists, all of the parties will still legally own the property and they will have to sign the relevant transfer documents prior to the sale of the property. However, unlike a joint tenancy where you will all own the whole of the property, the value of the property will be divided between all parties. The way in which it is divided will vary on a number of factors and doesn’t necessarily mean that each owner will have an equal share.
An agreement may be reached to divide the property into equal shares, even if one of the joint owners is paying more money towards the ongoing costs of the property. If you are not paying equal sums of money for the property, you can decide to own the property and form an agreement which is based around unequal shares. You must specify who has which shares in the property otherwise it will be assumed that the property is to be divided equally amongst the owners.
If the property is sold or one of the tenants in common dies, the proceeds will be shared amongst the remaining owners. In the case of a married couple, the remaining share of the property will go to the spouse. If you wish to hold the property in this manner, it is important that you check you can comfortably meet the mortgage repayments and other outgoings for the property. If taken to court, they do have the power to overrule any agreements where it is obvious that it does not reflect the amount that each party contributed.
It is strongly recommended that investments and business ventures are operated through a tenancy in common agreement.
More often than not, it is common people who are married or in a civil partnership to own the property as a joint tenant.
However there are exceptions to this rule including:
- Setting up a tenants in common agreement allows married couples and those in a civil partnership to take advantages of the various tax planning measures.
- There are certain situations where it would be sensible for just one half of the married couple to own the property. Usually this is in the case of tax planning or when a spouse faces unlimited personal liability for one reason or another.
- Tenants in common is also advised when one person purchases a property using assets that they owned before the marriage or prior to them entering into their current relationship.
- Where couples are not married, it is always preferable to own the property as tenants in common, either as equal owners or amounts agreeable by both parties.
If you do agree to unequal shares in a tenants in common agreement, it is important that you also set up a trust deed which clearly states the different shares in the property. This is important because without this the law will distribute the property equally. This deed can also prove beneficial when proving the financial liabilities of the property such as mortgage repayments.
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