Equal ownership

Lots of couples choose to buy a property together as joint tenants. It seems like the obvious choice when you are in a relationship, and often there is little thought as to what might happen if things go wrong. However, it is worth considering that if you do separate, the assumption is that you each own 50% of the property. This means the sale proceeds must be split evenly, or one person must buy out the other’s 50% share.

If you are buying a property with someone else and you have made unequal financial contributions, then you may be concerned about a 50-50 ownership. If so, you should consider buying as tenants in common instead. Or, you can put a legal agreement in place, such as a Cohabitation Agreement. This can outline how your assets are owned, and what should happen to your finances if the relationship breaks down.

Rule of survivorship

The other important feature of buying as joint tenants is that the rule of survivorship applies. This means that when the first joint owner dies, their 50% share automatically passes to the surviving joint owner. You cannot leave your share of the property to anyone else. Even if you make a Will requesting that your share of the property pass to a named beneficiary, this legacy must ultimately fail. This creates difficulties if you want someone other than the co-owner to inherit your half of the property when you die, such as a child from a previous relationship.

What does it mean to buy as tenants in common?

When you buy a property as tenants in common, it means you can own unequal proportions of the property, should you want to. You can also have up to four named legal owners.

Separate shares

You can decide how the property ownership is divided, whether it is a 50%-50% split, a 60%-40% split, or something else. The percentage might be based on how much each person contributed towards the deposit, or will contribute towards the mortgage repayments. When the property is sold, each owner receives their share of the sale proceeds. This allows any disparity in financial contributions to be recognised, keeping each person’s share separate from the others. That is why tenants in common is often preferred by friends or family members who are buying a property together.

No rule of survivorship

Additionally, the rule of survivorship does not apply to tenants in common. In other words, a co-owner will not automatically inherit another co-owner’s share of the property when he/she dies. Instead, it is passed on to their beneficiaries. These will either be named in the deceased’s Will, or are decided by the rules of intestacy.

In keeping with the above example, imagine Alice and Bob had bought their property together as tenants in common. They each owned a 50% share, so there were no concerns about them having made unequal financial contributions. But they were keen to preserve their wealth for their beneficiaries. They each made Wills, stating that their share of the property should be inherited by their children. When Bob died, his 50% share was passed to his children, rather than to Alice. Alice’s children inherited her share when she died two years later. The property was then sold and the sale proceeds divided between Alice and Bob’s children.

Deed of Trust

However, buying as tenants in common is not as straightforward as buying as joint tenants. It entails additional paperwork, and while not essential, it is preferable to draw up a Deed of Trust (also known as a Declaration of Trust). This sets out the financial interests of each party and what should happen in the event the property is sold, or bought out by a co-owner. This further clarifies the arrangement, ensuring each person’s share is fully protected.

Which option is right for me?

Choosing between joint tenants and tenants in common is a personal decision. If you are buying a property with your partner, then buying as joint tenants might seem like a natural fit. After all, you might be contributing equal shares, and you might be happy for the property to be passed into your partner’s sole name, should you die first.

However, if you are making unequal contributions and you would like this to be formally recognised, then buying as tenants in common could be a better option. This is also true if you want the freedom to leave your share of the property to beneficiaries of your choosing.