Owning a house with someone else makes it much more affordable.
After all, you can split and combine payments to make a larger deposit on a house.
If you decide this option is best for you, you must choose the best property ownership type.
Joint Tenants and Tenants in Common are two of the most popular options.
Keep reading for a summary of the differences between these two methods of property ownership.
What are joint tenants?
Joint Tenancy is a type of property ownership between two people. It means that each person is an equal owner of the house.
If one person fails to meet their financial obligations, the other co-owner needs to pick up the slack.
If the house is sold, the proceeds are split equally. Payments received from renting out the property are also split 50/50.
If one of the people passes away, the house automatically transfers to the other party.
You cannot pass on your ownership of the property in a Will. Many people see this as a negative and a reason to opt for a tenants in common arrangement instead.
A joint tenancy can be terminated unilaterally without the consent of the other tenants.
What are tenants in common?
Tenants in common is an arrangement for when a property is co-owned by multiple people, all allocated shares in the house.
These shares can be transferred between different parties. Ownership is not necessarily equal between all people involved.
You must amend the deed of trust under Tenants in Common to add new tenants or redistribute shares.
When forming the partnership, you can also create a ‘Declaration of Trust’. This outlines who is entitled to what if circumstances change. This protects all people involved.
Tenants in Common differs from a Joint Tenancy because there are no survivorship rights.
The house does not automatically transfer to the other shareholders if someone involved passes away.
Instead, the deceased should outline who the shares are to go to in their Will.
This latter scenario is a drawback of Tenants in Common. It can sometimes result in co-ownership between people who don’t know or like each other.
This is especially common when the two original co-owners are not related.
How do you change from joint tenants to tenants in common (or vice versa)?
Switching from a Joint Tenancy to a Tenants in Common arrangement (or vice versa) is possible.
You usually do this by giving a ‘notice of severance’. Most people opt for this route because of a change in circumstances.
Common reasons for switching between ownership types include:
- A loved one passing away
- Financial circumstances changing
- Two of the people involved falling out
- One of the people wanting a new adventure
- Two people deciding to get married or divorced.
There are dozens more changes in circumstances that could apply.
You usually need support from a legal expert to transition between these two types of ownership.
This is especially important if a co-owner does not agree to the switch. It can then become a complex legal battle you will need help with.
Joint tenants vs tenants in common
When is joint tenancy better?
A Joint Tenancy is a common property ownership type where two or more people own the property equally.
It comes with the right of survivorship, i.e., if one owner dies, their share automatically passes to the surviving owners.
It is ideal for couples who want the property to pass onto their other half if one passes away. It is especially common if these two people do not have any children.
It is also useful for other types of family members. Siblings or cousins with a close relationship are a great example. And in some cases it’s even useful for close friends buying property together.
If they pass away, these people might want their share to go to the other person. This is particularly common if both people are unmarried.
When is Tenants in Common better?
A Tenants in Common arrangement is a property ownership type where two (or more) people own the property with an undivided interest.
If one of these owners dies, their share can be passed to their heirs or other beneficiaries.
It is better when you have children you want to pass the property onto one day.
You can assign your shares to them and thus give them a legal right to a portion of the property.
You are also better off with a Tenants in Common arrangement when more than two people co-own the house.
You can split the shares evenly between three, four or more people. This guarantees that everyone gets their fair share.
Alternatives to joint tenants or tenants in common
Joint Tenants and Tenants in Common are the two main types of co-ownership. However, some legal agreements are useful to supplement these methods.
Cohabitation agreement
A ‘Cohabitation Agreement’ is another type of legal arrangement. It explains how assets are divided and what happens if the legal relationship ends.
It can help prevent disputes because everything is written in the agreement at the start of the cohabitation.
Declaration of trust
A ‘Declaration of Trust‘ is another document you will also see when two people live together.
Once again, this outlines the intent of the co-owners and explains what happens in certain scenarios.
It is very useful when the property is sold. Speak to a solicitor for guidance on these two things.
