If you’re thinking of shared property ownership, then you need to understand the legal terms tenants in common and joint tenants. This article will break down the legal implications, ownership structures and inheritance rules for each so you can make the right choice.
Key Points
- Joint tenancy means equal ownership with right of survivorship, tenants in common means separate ownership and flexible inheritance.
- Tenants in common can manage their shares independently and pass them on through a will, more control over estate planning than joint tenants.
- The choice of ownership structure depends on your personal circumstances and relationships, joint tenancy is usually chosen by married couples and tenancy in common by friends or unmarried partners.
- Joint mortgages can help first-time buyers get on the property ladder by combining financial resources.
Tenants in Common and Joint Tenants: What’s the difference?
When it comes to property ownership joint tenants and tenants in common are two different types of joint ownership. Each has its own legal framework and implications, which can have a big impact on how the property is managed, owned, and passed on to beneficiaries, especially in the case of a joint owner. Understanding these differences before you buy a property can affect your financial interests and long term plans.
Choosing between joint tenancy and tenancy in common requires weighing up personal preferences, individual circumstances and financial security. Both types of ownership give co-owners rights to the property but they have different features and implications. Understanding these differences will help you make a decision.
Overview
Property joint ownership can take many forms but the two most common are joint tenancy and tenancy in common. Each has different legal implications for co-owners when buying property. Knowing these joint ownership structures is crucial for making informed property investment decisions and can impact your financial interests and estate planning in the property market.
Family members, friends or unmarried partners may choose tenancy in common for its flexible ownership shares and inheritance options. Married couples usually opt for joint tenancy for its simple inheritance rules and equal ownership. Personal circumstances will dictate your choice of joint ownership.
Joint Ownership
Joint ownership is a legal agreement where two or more people have ownership rights to a property, usually through joint tenancy or tenancy in common. Each has its own set of legal rights and obligations which co-owners need to understand to make a decision.
When you choose joint ownership you and your co-owners have equal possession and occupation of the property. This means each owner has a right to use and enjoy the whole property, regardless of their ownership share. Choosing between joint tenancy and tenancy in common should consider financial security, mutual agreement, and individual circumstances, including scenarios where one owner may buy the share of the other owner.
What is Joint Tenancy
Joint tenancy is a type of property ownership where two or more people own the property equally. This means each joint tenant has an equal share of the property and they collectively have the same rights to the property as one entity.
Joint tenancy is chosen for its simplicity of ownership and inheritance, with the right of survivorship and joint consent required for major property decisions. Let’s break this down further in the following sections.
Equal Ownership
In joint tenancy all tenants own the whole property equally, regardless of individual financial contributions. Each joint tenant has full ownership, if they separate each owns an equal share.
Any proceeds from the sale of the property must be split 50/50 between the joint tenants or one must buy out the other.
Right of Survivorship
One of the key features of joint tenancy is the right of survivorship. This legal principle means when a joint tenant dies their ownership share is automatically transferred to the surviving joint tenant. The property bypasses the deceased’s will and goes directly to the surviving joint tenant, so ownership is continuous.
Joint Decision Making
In joint tenancy major property decisions must be made with joint consent of all joint tenants. This means no single joint tenant can sell or change the property without the agreement of the other joint tenants.
Joint consent protects all joint tenants.
Tenancy in Common
Tenancy in common allows co-owners to have different shares of the property. Unlike joint tenancy tenancy in common allows for unequal ownership shares based on individual financial contributions. This structure gives you the flexibility to customise ownership arrangements to suit your individual circumstances and preferences.
Tenants in common can sell or transfer their shares independently and bequeath them through a will. This flexibility makes tenancy in common attractive to those who want control over their ownership and inheritance plans.
Different Shares
Tenants in common have separate shares of the property which can be equal or unequal depending on how much each person contributed to the purchase price. Ownership shares can reflect individual financial contributions so you can tailor your property ownership.
When the property is sold each tenant in common gets their share of the sale proceeds based on their ownership percentage.
Flexibility of Ownership
One of the benefits of tenancy in common is the flexibility. Co-owners can adjust their ownership shares as their circumstances change, so it’s a dynamic way of owning property.
Also, tenants in common can manage their shares independently, including selling or mortgaging their share of the property without needing to get consent from the other owners.
Inheritance
Tenancy in common gives you more control over inheritance options than joint tenancy. Co-owners can bequeath their shares to anyone they choose through a will so their ownership interest goes to who they want.
This is especially useful for estate planning as tenants in common can nominate specific beneficiaries.
Joint Tenancy vs Tenancy in Common
Knowing the differences between joint tenancy and tenancy in common is important to make an informed decision about property ownership. Joint tenancy means equal ownership and right of survivorship, tenancy in common means different ownership shares and flexible inheritance options. These differences will impact how the property is managed, owned and passed on to beneficiaries.
The choice between these two types of ownership affects not only your financial interests but also your ability to make individual decisions and plan for the future. Let’s dive into the details below.
Ownership
In joint tenancy co-owners share equal ownership of the whole property so there’s no individual shares. Tenants in common have specific percentage shares of the property which can be unequal financial contributions.
This allows tenants in common to have separate ownership interests and adjust their shares as needed.
Inheritance
The right of survivorship in joint tenancy means when a joint tenant dies their share goes to the other joint tenants. Tenants in common can bequeath their ownership shares to anyone they choose in their will.
This gives tenants in common more control over their estate planning and inheritance options.
Decision Making
Joint tenants must jointly agree to major property decisions including selling or altering the property. This ensures all joint tenants’ interests are protected and prevents any one co-owner or other joint owners from making decisions on their own.
Tenants in common have more individual autonomy and can make decisions about their shares independently.
Choosing the Right Structure
Choosing the right structure depends on many factors including your personal circumstances, financial goals and relationship with your co-owners. Knowing the differences between joint tenancy and tenancy in common will help you make an informed decision that suits you. For example buying a home with a partner or planning for estate distribution are scenarios where the choice of structure is critical.
Before you make any decisions talk to a solicitor to understand the legal implications and responsibilities of each type of ownership. A Deed of Trust can also be created at the time of purchase to avoid future disputes about ownership shares.
For Married Couples
Most married couples choose joint tenancy because of its simplicity and inheritance. This structure reflects their financial intention of equal shares and the property goes to the surviving spouse upon death.
Joint tenancy makes for clear and simple ownership for joint owners so it’s easier for couples to manage their shared property.
For Unmarried Couples and Friends
Tenancy in common is often chosen by friends or family members buying a property together as it allows for flexibility in ownership arrangements and recognition of unequal financial contributions. Each person can act independently of their share so it’s suitable for those who value individual autonomy and customised ownership structures.
Legal and Financial
Legal and financial considerations are important when choosing a structure. Talk to a legal expert to understand the specific implications and responsibilities of each type of ownership including the legal jargon.
Also a joint mortgage creates a financial link between the parties so if one party defaults it can impact all borrowers credit scores.
Changing Structures
Changing from joint tenancy to tenancy in common or vice versa involves specific legal processes and documentation. Knowing these processes will ensure the changes are valid and legally binding.
You may need to change ownership structures due to changing personal circumstances, financial goals or relationship dynamics. Whatever the reason talk to the co-owners and follow the legal process. Let’s go through the steps in the following sections.
From Joint Tenancy to Tenancy in Common
To convert joint tenancy to tenancy in common co-owners must agree and complete the necessary legal documents. This includes completing the relevant section of the Land Registry Form SEV and submitting a Form A restriction to the Land Registry.
This will register the ownership structure and each co-owner’s share.
From Tenancy in Common to Joint Tenancy
Converting from tenancy in common to joint tenancy requires all co-owners to agree and update the Deed of Trust to reflect the new structure. This will formally register the ownership as joint tenancy with all co-owners having equal shares and the right of survivorship.
Documents and Deed of Trust
A Deed of Trust is a legal document that protects the financial interests of co-owners and provides clarity around property matters. This document outlines the financial contributions and arrangements for the property investment, so each person’s share is fully protected, and includes key legal terms to prevent future disputes.
It also includes provisions for future changes to prevent disputes and to define the ownership structure.
Joint Mortgages
When co-owners take out a joint mortgage they share the financial responsibility of the property purchase. Joint mortgages can be taken out under joint tenancy or tenancy in common depending on the co-owners circumstances and preferences. One of the benefits of a joint mortgage is the increased lending capacity due to shared financial responsibility.
But this shared liability also means if one party defaults on the mortgage payments it can impact both parties credit scores. The financial link created by a joint mortgage can complicate financial independence as each party’s credit history affects all borrowers.
So it’s important to consider the implications of a joint mortgage and make sure all co-owners are aware of their responsibilities and risks.
Benefits of Joint Mortgages
Joint mortgages offer increased lending capacity and shared financial responsibility making them a popular way to finance property purchases. By combining their finances co-owners can qualify for larger loans and potentially better mortgage terms. This shared responsibility can also make it easier to manage the mortgage repayments and the property.
Risks of Joint Mortgages
While they have benefits joint mortgages also have significant risks. Both parties are liable for the whole mortgage debt so if one party defaults on the payments it can impact both parties credit scores.
Shared liability complicates future borrowing and can risk property repossession if the mortgage defaults.
Conclusion
In summary understanding the differences between joint tenancy and tenancy in common is key to making informed decisions around property ownership. Each type of joint ownership has different legal implications around how the property is managed, owned and passed on to beneficiaries. Joint tenancy is equal ownership and right of survivorship, tenancy in common is separate ownership and flexible inheritance.
It’s up to you to decide what structure is right for you, your financial goals and your co-owners. Whether you’re a married couple, friends or family members buying a property together it’s important to get legal advice and create a Deed of Trust to protect your ownership interests. By understanding this and taking the legal steps you can make the right choice for you and secure your financial and inheritance plans.
FAQs
What’s the main difference between joint tenancy and tenancy in common?
The main difference is ownership rights; joint tenancy is equal ownership and right of survivorship, tenancy in common is separate ownership and flexible inheritance.
Can tenants in common leave their shares to anyone they like?
Yes tenants in common can leave their shares to anyone they like in their will.
What happens if one joint tenant dies?
If one joint tenant dies their share automatically goes to the other joint tenants because of the right of survivorship. This means the property stays with the remaining owners.
How do we convert joint tenancy to tenancy in common?
Converting joint tenancy to tenancy in common requires co-owners to agree, complete the necessary legal documents and lodge a Form A restriction with the Land Registry. This will formalise the change of ownership structure.
