Are you purchasing a property with another buyer? Joint ownership is a formal contract, but what kind of joint ownership are you entering? This article will help you decide if a tenancy in common is a good fit for you.
Tenants in Common meaning
When you enter a tenancy in common agreement, you become tenants in common. This agreement means that 2+ individuals hold interest in a property, with each owner having the ability to pledge their share in the property to a person/entity of their choosing if they die. This isn’t to say the individual owners own specific parts of the property, but that they have a separate interest in the entire property.
The ownership interests for tenants in common don’t necessarily have to be equal. For example, Jack could own 60% and Jill 40%. This ownership of separate amounts of interest in a property means a tenancy in common is more suitable to some people than others. If, for example, you are buying with friends or family, this type of arrangement can be ideal.
Joint Tenants or Tenants in Common
Tenancies in common and joint tenancies are different forms of co-ownership. They both serve to enable 2 or more people to jointly own a property, but the rules and implications are somewhat different.
The choice between becoming tenants in common or joint tenants with your co-owners is important. It depends largely on your circumstances and who your co-owners are to you. You should consider the options carefully to avoid problems arising further down the line.
Difference Between Joint Tenants and Tenants in Common
- Tenants in common each own a predetermined percentage of ownership interest in the property. Joint tenants, on the other hand, each own 100% of the property. People may find a tenancy in common useful when one owner fronts a substantially larger amount of deposit than the other(s).
- With a ‘tenants in common’ arrangement, each owner can name a beneficiary for their interest in the property when they make a will. Joint tenants are unable to do this because the title of the property automatically goes to the surviving owner(s) if one owner dies. We call this Rights of Survivorship.
- Joint tenants will both be named on a single deed simultaneously. It’s a single transaction where both individuals are acting as one united party. Therefore, the property automatically reverts to the remaining owner(s) if one owner passes away. With a tenancy in common, all co-owners do not have to enter the agreement simultaneously. Interest in a property can be obtained much later than when the original tenancy in common was set up – years later, in some cases.
The same rules apply for both types of co-ownership arrangements. This includes the necessity for all co-owners to be in agreement for a property to be sold. It also includes the requirement for a joint mortgage in order to secure joint ownership of a property. Technically speaking, tenants in common would qualify to obtain their own mortgages, but there are very few lenders who actually offer this option.
Ownership percentage options for Tenants in Common
For tenants in common agreements, the only requirement is that the percentage of ownership from all the co-owners must add up to 100%. With joint tenants, each co-owner owns 100%, but for tenants in common, the ownership percentages total 100%. The ownership share can be broken down any way you like. For example, Tom could own 50% while Richard and Harry each own 25%. Alternatively, they each could own 33.33%.
Where there is no specific ownership interest breakdown, the co-owners will be assigned equal ownership.
Changing to Tenants in Common
The switch from individual owners to tenants in common can be made by undertaking a process known as transferring ownership. It’s also possible to switch from a joint tenancy to tenants in common.
To make the second of those two switches, you must undertake a process called ‘severance of tenancy’. This involves applying for a form A restriction which must then be sent to HM Land Registry’s Citizen Centre. The switch from joint tenancy to tenants in common can be made without the permission of your co-owners.
If they aren’t in agreement, you can:
1. Serve the other owners with a notice of severance.
2. File a Form A restriction, or a form RX1 if you are unable to provide documentation for the severance options required in a Form A restriction.
3. Prepare the necessary supporting documents.
4. Send your form, along with all supporting documentation, to HM Land Registry’s Citizen Centre.
If you need help with this process, you can hire a solicitor, conveyance or legal executive. There’s no fee for processing the change itself, but you will have to pay for the services of any professional who helps you.
When would such a change be necessary?
The most common reason people make the change from a joint tenancy to a tenancy in common is divorce or separation. In these cases, the two parties may wish to leave their share of a property to a different person in their will, so a tenancy in common is necessary.
Are there disadvantages to being Tenants in Common?
A tenancy in common won’t be a good fit for all co-owners. There are certain risks which need to be considered first:
- If a co-owner dies without having made a will, their interest in the property must go through probate. This can be a long and expensive process.
- If one tenant wishes to sell, but the others do not, that tenant can compel the other co-owners to sell by filing a partition action.
A ‘tenants in common’ arrangement allows joint ownership with some extra independence. If you would like to learn more about your mortgage options, contact the expert team at Think Plutus and we’ll be happy to answer your questions. We’re specialists in mortgage advice and can help you find the best mortgage no matter what type of joint ownership you plan to enter.