Joint tenants or tenants in common – which is best?

Joint tenants vs tenants in common – what’s the difference?

‘Joint tenants’ and ‘tenants in common’ are two different ways people can co-own a property in the UK. Buying as joint tenants means each owner has an equal share of the property. With tenants in common, each party owns a specific share of the property. There are also other differences to consider, such as what happens to your share in the event of your death, rules about selling or transferring your share, and whether differences in financial contribution are recognised in the event of a relationship breakdown.

Joint tenants

With a ‘joint tenants’ arrangement, each party owns an equal share of the property. This type of arrangement is usually used when married couples purchase a property together.

To be joint tenants, each party must buy the property at the same time.

Joint tenancy agreements include a right of survivorship. This means, if one owner passes away, their share of the property automatically transfers to the other owner(s). Regardless of how many owners there are, each person will always have an equal share.

Benefits of joint tenants

Joint tenancy will often be used by couples buying a property together, parents and children, or when siblings inherit a property.

One of the main benefits of joint tenants is that ownership automatically passes to the other owner(s). This means the property does not need to be included in the probate process. This makes it easier for the surviving owner(s) and will also save time and money spent on legal fees.

Disadvantages of joint tenants

With joint tenancy, all parties have an equal share. This means the arrangement will not recognise if one party makes a larger financial contribution to the deposit or pays a larger share of the mortgage repayments. This may cause added complications if the relationship between the joint tenants breaks down.

As mentioned previously, joint tenancy also includes the automatic right of survivorship. This means ownership will automatically pass to any surviving tenants if one of the joint tenants dies. This can offer convenience and cost savings, but it should be considered as part of your estate planning. You may, for example, have children from a previous relationship that you would like to leave an inheritance to.

Joint tenancy can also become complicated if one of the joint tenants has or acquires significant debt. If the debt is secured on the property, creditors may attempt to force a sale to cover what is owed. This is less likely to be an option for creditors if each party owns a specific share of the property.

Tenants in common

Tenants in common is an alternative legal arrangement when purchasing a property.

With tenants in common, each party owns a specified share of the property. Unlike joint tenants, tenants in common do not automatically own equal shares. This can be used to recognise different levels of financial input or other inequalities between the owners.

Benefits of tenants in common

Tenants in common can be a good option if you’re buying a property with friends, relatives or a business partner. A ‘tenants in common’ arrangement offers a little more separation of interests, with each party’s share being protected. This means that should your relationship with the other owner(s) break down, your share in the property will be legally secure.

With tenants in common, you are also able to dictate who your share should pass to in the event of your death. You may also be able to sell or transfer ownership of your share of the property if you wish to do so (in agreement with the other owners and in line with the conditions set out in any Deed of Trust that is in place).

Disadvantages of tenants in common

There are several things to consider if you’re considering buying a property as tenants in common.

With tenants in common, each party’s share is treated independently. As a result, tenants in common will require additional paperwork. This will include:

• A valid will that details who you wish your share to go to in the event of your death
• A declaration of trust (also known as a deed of trust) – a legal document that details the arrangements of the tenants in common agreement, including each party’s rights and responsibilities

This additional paperwork will be put together by a solicitor and will therefore have a cost implication.

As a tenant in common, you will dictate who you want your share to go to in the event of your death. Before your share can be transferred to the new owner, it will need to go through probate. This may have cost implications for your estate planning in the form of legal fees and inheritance tax implications.

If you are a surviving tenant in common, there will also need to be a consideration about whether you’re able to continue co-owning the property with the new owner. If you feel this is not feasible, the property may need to be sold.

Ultimately, because a tenants in common arrangement offers more protection and autonomy to each person’s share, there is likely to be more admin and cost involved in the transference of the share in the event of a death.

Declaration of trust – tenants in common

A Declaration of trust (also known as a deed of trust) is a legal document created to outline the details of an agreement when people buy a property together.

It will include information about:

• Ownership shares eg. 50/50, 80/20 etc.
• Financial contributions and arrangements eg. who paid what in terms of deposit and how any mortgage repayments will be split
• Guidelines for what should happen in the event of the property being sold

Whilst a declaration of trust is not compulsory when buying a property as tenants in common, it is highly recommended. This is because it allows you to legally detail your agreement from the very beginning. This will make things quicker, easier and less contentious if you decide to sell the property at any point or if there is a breakdown in the relationship between the owning parties.

Tenants in common mortgage

When you buy a property as tenants in common, all parties will be named in a collective joint mortgage application. It’s important to note that each owner will be jointly liable for the entire mortgage, not just their share of the property.

Being tenants in common shouldn’t have any impact on the likelihood of being accepted for a mortgage or how much you’re able to borrow, but your lender may ask to see a declaration of trust as part of the mortgage application process.

Which arrangement is best for you – joint tenants or tenants in common – very much depends on your personal and financial circumstances. Joint tenants is the usual arrangement when buying a property if you want equal shares or are buying with a spouse. If, however, you want your arrangement to acknowledge unequal financial input or you require a more formal, protected agreement, tenants in common may be a better fit.

For further information that is tailored to your specific needs, please seek independent legal advice.