Property ownership comprises two elements: first, there is the legal title and secondly there is the beneficial entitlement. The legal owners are those shown on the deeds but they are not always the persons who are entitled to benefit from the property. This is a very important consideration as there are various ways in which the legal and beneficial entitlement to property can be dealt with to suit the intentions of the parties involved.
We have set out below some brief guidance as to the different methods of ownership:
This is where all of the legal owners are also jointly and equally entitled to the beneficial ownership of the property. So, if one of the legal owners dies, the property will automatically belong to the survivor(s).
If a joint tenancy is created when a property is purchased it can be severed at a later date to create a Tenancy in Common. This was often done for inheritance tax planning or where a change in circumstances or the relationship means that it is no longer appropriate for the parties to own the property on a "survivor takes all" basis.
Example One: X and Y buy property together and decide they wish to own it as joint tenants. On the death of X the property is then automatically solely and entirely owned by Y. The legal title can be amended into Y's sole name by simply supplying a copy of the death certificate to the Land Registry as X and Y did not own distinct shares but instead jointly owned all of the property so the survivor takes all.
Example Two: A and B have bought a house. A has two children from a previous relationship but A and B have decided that they wish to own the property as joint tenants. A dies and the property automatically belongs to B. As the property was held as joint tenants, A was not able to gift her share to her children in her will and B was left legally and beneficially entitled to the property to do with it as he thinks fit.
Tenants in Common
This is where the legal owners of the property may have equal or differing beneficial interests in the property. This type of ownership is different to a joint tenancy as the parties are at liberty to deal with their individual shares. Inmost cases the beneficial interest in the property is held in equal shares but this does not always accurately reflect the circumstances.
Sometimes, the contributions to the purchase price can be from various sources, all of which can be reflected in the ownership. For example, if three people are buying a property and each has contributed different amounts to the purchase price then they can hold the property as tenants in common in unequal shares. The beneficial interest can be divided into proportions which represent their initial contributions.
In more complicated cases, the parties involved may have agreed that they will be equally responsible for mortgage payments but still wish to hold the beneficial interest in unequal shares. In circumstances such as these a Deed of Trust is needed to clarify and set out that arrangement.
Example One: A and B as in the example above have decided to hold their property as tenants in common in equal shares. A dies and in her Will she has left her share in the property to her two children. B will then own the property with the children or if B sells the property, the children will be entitled to 50% of the sale proceeds.
Example Two: C and D buy a house for £100,000. C contributes £80,000 and D contributes £20,000. They decide to hold the property as tenants in common according to their proportional contribution. This means that C owns 80% of the property and D owns the remaining 20%. C and D can gift their shares to third parties in their Wills or to each other.
Example Three:C and D have bought property as set out above but D has agreed to pay for all of the refurbishment works required. To ensure that D's additional contribution to the property is properly and fairly reflected the parties have agreed that C will own 60% of the property and D will own the remaining 40%.
Example Four: E and F buy a house for £100,000. They obtain a mortgage for £20,000 and E contributes £30,000 from the sale of his house. F contributes the remainder from the sale of her house( £25,000) and a loan from her parents (£25,000). E and F hold the property as tenants in common but have an additional Deed of Trust which states that they will equally contribute to the mortgage payments and if the property is sold after the repayment of the mortgage, repayment of the loan from F's parents must be made and then the remaining equity is to be split between E and F with 55% going to E and 45% going to F.
The examples given are simply to provide an illustration of how the different methods can be employed and you should not hesitate to discuss your requirements with us. Complete our short online enquiry form now.