With rising property prices, there is a growing trend for multi-family buys where families pool their money to buy a bigger (and better) property than they might otherwise be able to afford. It is vital in these transactions that agreements between joint owners are well thought out and properly documented, as the majority of problems occur when matters are agreed verbally, but not formalised legally – especially in families.
The following is a brief overview of the main options for buying property to be owned in joint names.
- Joint Tenants
This means that the shares are always equally divided between the number of joint owners. If there are three owners, they will each own a nominal third share. When one owner dies their share is automatically transferred to the surviving joint owners and so, in this case, the remaining two will then own half each. If the property is sold, or rented, they each get an equal share of the profits. Most married couples own their family homes like this.
- Tenants in Common
This is slightly different and enables you to choose the shares in which you each own the property and enables you to determine what will happen to your share after your death. For example, three joint owners could buy a property and own it as to 25%, 25% and 50%; useful if one person contributed more of the purchase money than the others. If it is sold or let, then each owner is entitled to that proportion of the sale proceeds, or rental income. Owning in this way means that you can leave your share to a person of your choice in your Will, rather than it automatically reverting to the other joint owners.
- Creating a formal trust
This is the more complicated option and trust mechanisms range from the very basic, to the wildly complicated – and as professionals’ fees vary accordingly, this is probably only worth considering for higher value property. Advantages are that you can be considerably more precise about who is entitled to what and when e.g. one person is allowed to live in the property during their life, but when they die, their children (say) are then allowed to rent it out and share the income. In a trust, a number of trustees are appointed to be the legal owners of the property (these can be family members, or professionals, or commonly a mix of both). The Trustees are not entitled to the profits from it, but are the people who need to sign the documents dealing with any legal interest in it. This creates a level of subjectivity and safety. Without trying to over-complicate matters, it is useful to understand the distinction between legal and beneficial ownership here as the distinction is a peculiarity of English law. Although usually vested in the same person, the legal ownership (the name that appears on the legal title documents relating to a property) and the beneficial ownership (the right to live in the property, or to receive the money generated by it if sold, or rented) can be split up and held by different people – this is the basis of a ‘trust’. The major advantage of this is that the beneficiary is allowed to live in the property, say, but cannot sell the house without the trustees’ say-so – useful for parents concerned about spendthrift children! There can also be advantageous tax treatment of property held on trust.
Two caveats to the above: firstly, even if you agree shares, or if a property is bought in a single name, there are cases where an occupier who has made substantial contributions towards the cost of paying the mortgage, or renovation, say, is deemed to be entitled to a share when the property is sold – typically this occurs on a divorce where the house is/was owned in one partner’s sole name. Secondly, this is only the property law aspect of such purchases and a family law specialist will be needed to advise on the relevant marital home / civil partnership and similar legal aspects. As to the wisdom and sanity of buying jointly with one’s parents or children; well, that is one for Phil and Kirsty to unravel.