Joint Ownership

Introduction

There is more than one dimension to Co-ownership.  Whenever two or more people jointly own a property, there is in [English] law a trust created.  As well as that, there are two types of joint ownership - joint tenancy and tenancy in common.  Joint tenancy and tenancy in common are discussed as a separate topic below.  However, the two types of joint ownership and Trusts are inextricably linked.  To take an example, two friends buy a property together as an investment.  If one of them dies, they want their share to pass to their family, not to the other friend.  After giving appropriate instructions to their solicitor, the end result is that they hold the property on trust for themselves as tenants in common. 

In many cases, the existance of trust in property ownership is not obvious because the Trustees and the Beneficiaries are often the same people.  The fact that a trust exists is based on their being two types of estate or interest in a property.  There is the legal estate and the equitable interest.  The legal estate is the interest which operates at law.  To illustrate that, it is the people you find on the title deeds or in the proprietorship register (if the land is registered) which hold the legal estate.  The equitable interest is the 'real' ownership.  It is the 'thing' which is worth the money.  The person who owns the equitable interest does not necessarily have their name on the deeds or the proprietorship register.  However, the holder of the legal estate is not holding a nominal form of ownership either.  The owner of the equitable interest may be the 'real' owner but it is the holder of the legal estate that has the power to sell and mortgage the property.

Example 1.

Mr. & Mrs. Jones buy a property in joint names.  Together, they hold the legal estate as their names are on the deeds.  They also hold the equitable interest.  In other words, they hold the property on trust for themselves.  Because they are quite happy for their share to pass to the other when one of them dies, they hold the property on trust for themselves as tenants in common (see below for further explanation on joint tenancy and tenancy in common)

Example 2

6 people decide to buy a property in equal shares.  The law does not allow more than 4 people to hold the legal estate.  The deed executed by the Seller sells to all 6 of them.  When it comes to registering the property at the Land Registry, the land registry only places the first four names on the register.  The result is the first four are trustees holding the property on trust for the 6 of them.

Example 3

Two parents want to buy a property for their son who is going to University.  The son is not yet 18.  A minor under the age of 18 is not allowed to own a legal estate so the parents buy it.  They then execute a declaration of trust stating that their son is the full equitable owner. The result is that the parents hold the property on trust for their son who owns the entire equitable interest.

A legal owner has all of the responsibilities which go with owning the property.  That includes responsibility for paying the Mortgage.  If two people are joint legal owners, they are jointly and severally responsible for the Mortgage even if they have agreed between themselves that only one of them is responsible for paying it.

What happens if one of the Co-Owners leaves the property and refuses to pay the Mortgage?

The Co-Owner who is left at the property "carrying- the baby" is more than likely not to be financially able to maintain the Mortgage payments.  Doing nothing leads to Repossession.  The property therefore has to be sold. 

What  if the party that has left refuses to co-operate in a sale?  In that situation, the Co-Owner who wants a sale can get an order for sale in the civil courts.  Unfortunately, that may prove to be so expensive that it makes bad matters worse.  The party who refuses to sell will be liable for Court Costs but that party may be difficult to track down and his share of the property may not be large enough to compensate the owner who has to take the Court action.

If the Co-Owners are husband and wife, the Law has a different dimension because Family Law Statutes apply.  In England and Northern Ireland, the Court has the power to "chop up" assets - including shares in a property - in any way it decides.  This is known as the court's powers of ancillary relief. 

Whether or not the Co-Owners are married, if there is an irretrievable breakdown in the relationship between them then legal advice should be taken by both of them.

Can anything be done at the time of buying the property to make it easier if something goes wrong.

If the Co-owners are not husband and wife, it is utterly sensible that some legal document is drawn up to evidence whatever arrangement has already been made about shares and outgoings. This may not solve the problem that we have  illustrated above.  However, having such a legal document is less likely to result in  irresponsible action by a co-owner when a relationship breaks down. 

Joint Tenancy and Tenancy In Common

These are the two different types of joint ownership.  A Joint Tenancy means that the Co-Owners have equal undivided shares in the property which pass automatically on the death of one Joint Tenant to the surviving Joint Tenant(s).  A Joint Tenancy can not be passed under a person's Will. 

A Tenancy In-Common is a holding of a divided share.  That share can pass on a Tenant In-Common's death under his Will or under his Intestacy (without a Will).  Unlike a Joint Tenancy, the shares in a Tenancy In-Common do not have to be equal.

A tenancy in common can only exist in relation to the equitable interest.  It can not exist in relation to the legal estate.  Only joint tenancies exist in relation to the legal estate (This is not the same in Northern Ireland).

Creating a Joint Tenancy or a Tenancy In-Common is a simple task for the conveyancing Solicitor.  If two or more Co-Owners have a Joint Tenancy, it is also very simple to convert it to a Tenancy In-Common by severing the Joint Tenancy.  This can be done by one Co-Owner writing a letter to the other(s) declaring that the Joint Tenancy is severed.  This is usually done when two Co-Owners split-up.

Should we have a Joint Tenancy or a Tenancy-In-Common?

There are three levels of consideration here.  Firstly, if the shares of the Co-Owners are unequal, they must have a Tenancy-In-Common.  We advise that this should be evidenced by a Declaration of Trust.

Secondly, if the shares of the Co-Owners are equal, then a Tenancy-In-Common will still be desirable if any of the Co-Owners do not want their share to pass to the other Co-Owners on their death.  A share in a Joint Tenancy can not pass under a person's Will on their death if there are one or more surviving joint tenants.

Thirdly, even if the shares are equal and the Co-Owners are happy that their share will pass to the other Co-Owner on their death, a Tenancy-In-Common may be desirable for the purpose of Inheritance Tax planning.    This type of tax planning should be considered in conjunction with having Wills drawn up.

Related topics

Moving Home
Ancillary relief
Inheritance tax