Buying a property with someone else can definitely sound like a good idea. By joining your financial resources you may be able to purchase a home that otherwise would have been out of your price reach. However, there are things to consider, as if the two parties find they have different ideas about what to do with the property, there could be some quite serious legal and financial implications - so it's important to know all the facts.
What does joint ownership of property mean?
Joint ownership takes place when two people decide to purchase a property together. The most common situation is when married or unmarried couples buy a home together, but joint ownership may also be when friends or family members choose to jointly purchase a property.
Under UK law there are two ways you can become a joint owner of a property: you can either become joint tenants or tenants in common.
- Joint Tenants - if you sell the property, the sale proceeds will be split 50:50
- Tenants in Common - if the property is sold, the sale proceeds can be either split equally or unequally. The presumption would be an equal split, but where monies are provided unequally a Trust Deed can be entered into between the parties which set out the proportions owned by each party.
What happens if one of you wants to sell and the other doesn’t?
- Joint Tenants - if only one of you wants to sell (perhaps to get their money out) then they cannot do so without applying to the court to force the sale against the wishes of the co-owner. The Court may or may not agree.
- Tenants in Common - it is easier to sell when you own the property as Tenants in Common because as soon as one party wants to sell the other has no choice. In addition, a Trust Deed can have provisions written into it that state what happens should one owner want to sell - such provisions usually state that the owner not wanting to sell gets the opportunity to buy the other owner’s share and if agreement cannot be reached within a certain timescale, the property must be sold on the open market and any profits divided according to the Trust Deed.
What happens when you die?
• Joint Tenants - on the death of one of the owners, their share automatically goes to the surviving owner, irrespective of whether there is a Will or not. Buyers considering owning as Joint Tenants need to consider if this is what they want or need.
• Tenants in Common – on the death of one of the owners, the share owned by that person does not automatically pass to the other owner, it passes according to the deceased person’s Will or if there is no Will then it passes to their nearest surviving relative under the rules of “survivorship”.
The biggest problem we see where a property is bought as Joint Tenants is if both owners die at the same time, for example in a car accident. The law assumes the oldest person dies first, and therefore their share is passed to the younger person. This share is then passed on to the youngest person's relatives, either under their Will or, if none, under the rules of survivorship. This can cause a problem because the family of the oldest person could end up inheriting nothing, even though they might have put in the majority of the purchase price or are the ones looking after any children.
In the case of Tenants in Common, if one party dies, a Trust Deed may show the percentage share of the property they owned at that time but it does not say who inherits their share. As the deceased’s share does not pass automatically to the surviving partner, it might mean the survivor ends up owning the property jointly with the family of the deceased which may not be what the parties want. To ensure that the deceased’s wishes are carried out, each buyer would need to make a Will.
Often it makes sense for joint buyers, especially if they are unmarried, and/or contributing unequally to the purchase, to buy as Tenants in Common and enter into a Trust Deed and to both make Wills. In other situations, the parties wishes may be fulfilled in all circumstances by simply owning as Joint Tenants, without needing either a Trust Deed or a Will.
Things to consider when buying a property with someone else
There are a number of things to discuss before deciding on joint ownership of a home. The first thing is to decide on the type of co-ownership you wish to choose. Secondly, decide on what documents you need to have in place to avoid problems in the future. Bear in mind that tenancy in common accompanied by a Will and a Trust Deed will give you the highest level of protection.
Some of the things you need to think about in advance include:
- Whether or not you are contributing equally to the purchase price
(if not, a Trust Deed should specify whether the ownership should be split equally or proportionally to the initial contribution).
- Whether you have agreed to pay the mortgage (if any) and costs equally
(If not, Trust Deed will specify if the ownership should be split equally or proportionally to ongoing contribution).
- Whether any of you may wish to leave your share in the property to somebody other than your co-owner (if so, you will need to specify this in your Will).
- What will happen if you die (including taxation aspects. Your Will will be instrumental in specifying this)
- What will happen if one of you wants to sell and the other does not (a Trust Deed may help here)
- What will happen whilst you are alive if you and your co-owner go your separate ways and/or dispute the shares you own in the property.
Deciding to co-own a property with somebody else is a huge decision that can have a life-changing impact on your quality of life down the line so it's really essential that you get specialist advice from a qualified solicitor before making any binding decision.
If you like the idea of owning a property either individually or with someone else, start your journey by looking through our selection of stunning homes available to purchase through Peabody.