Many of us will be familiar with the concept of joint tenants, but tenants in common is less well-known. In this blog we’ll explain what tenants in common means, as well as looking at how it differs from being joint tenants.
How does tenants in common work?
Tenants in common is a form of property ownership that allows you to own either an equal, or unequal, share of a property with someone else. For example, if one of the owners makes a bigger financial contribution at the point of purchase, they may want this reflected in the property’s ownership structure. Tenants in common makes this possible, as you can specify what percentage of the property each person owns.
You don’t have to become tenants in common when you buy the property either. Say you initially buy a property as joint tenants, then one of you pays off a portion of the mortgage at a later date. You may want to become tenants in common to reflect this (see below for how to do this).
Also, with tenants in common, if you die, your share of the property won’t automatically go to the other owner/s. It’s therefore possible to pass on your portion of the property to someone else in your will. This may be useful if you have children from a previous relationship and want to leave them your share of the property when you die. To do this you would also need to have written a Will that specifies your wishes.
At whatever point you decide to become tenants in common, it’s important that you draw up a ‘deed of trust’. The deed should clearly state what share of the property belongs to each owner. It can also be used to clarify what should happen to the property if your relationship ends. Or, if one of the owners wants to sell, but the others don’t.
Tenants in common vs joint tenants
On the surface, joint tenancy appears to be fairly similar to tenants in common. However, there are some very important differences. If you are joint tenants, you jointly own the whole property. This means that when you sell the property, each owner is entitled to an equal share of the proceeds.
Also, if one owner dies, they cannot leave their share of the property to anyone else in their Will. Full ownership will automatically transfer to the other owner.
Joint tenancy might be good for couples, who want their partner to inherit their share of a property when they die.
How to change from joint tenants to tenants in common
Generally new property purchases are created on a joint tenancy basis. If you want to have your new home or property on a tenants in common basis, you will need to make sure you specify this.
If you already own a property on a joint tenancy basis and wish to change to tenants in common, you’ll need to apply for a ‘severance of joint tenancy’, using a ‘Form A restriction’. While this may sound painful, it just involves HM Land Registry adding a note to the register of the title of the property. This will confirm the new ownership status. If you’re unfamiliar with the process, it could be worth speaking to a solicitor, conveyancer or legal executive for advice. You may also need to seek permission from your lender if your property is mortgaged.
Can tenants in common sell their share?
Yes, they can. One owner may decide to sell their share to the other/s if they reach a joint legal agreement. It’s even possible for one owner to sell their share without the agreement of the other/s, provided they have a deed of trust that clearly states they can. If there isn’t a deed of trust, or there is, but it doesn’t address this issue, things get more complicated.
Can a married couple be tenants in common?
They certainly can. Married couples often decide to become tenants in common if they have children from a previous relationship and want to leave their share of a property to them in their Will.
What happens when one of the tenants in common dies?
When one of the tenants in common dies, their share of the property will be distributed to the beneficiaries named in their Will. If they don’t have a Will, it will be passed on to their spouse or closest living blood relative, in line with the Rules of Intestacy.
Do tenants in common avoid care home fees?
Being tenants in common can affect the care home fees you pay. This is because if you need residential care at any point, your local authority will complete a Care Needs Assessment, including a financial assessment, to decide who should pay for it.
As a tenant in common, you will only be means tested on your share of the property. This may potentially reduce the fees you’re liable for, in comparison with being a joint tenant.
It’s important to note that while this arrangement may help reduce the fees you pay, it isn’t guaranteed. Also, councils can challenge arrangements if they believe they’ve been set up to deliberately avoid fees.
What is the difference between tenants in common and Joint Borrower Sole Proprietor (JBSP)?
Tenants in common defines how the ownership of a property is split. In contrast JBSP refers to a specific type of mortgage. If a property has been purchased using a JBSP mortgage, not everyone named on the mortgage will be an owner of the property.
However, everyone named on a JBSP mortgage will be jointly and severally liable for repaying the debt. This means that a mortgage provider could chase all parties for repayments if finances become a problem, even though they don’t own the property and aren’t on the deeds.
If you’re thinking about buying a property we offer a wide range of mortgage products that may be suitable for you, including Joint Borrower Sole Proprietor. Why not get started by completing our decision in principle form today – it should only take around 10 minutes. You may also wish to seek independent legal advice, and advice from a mortgage broker.
