The sad reality of home ownership is that most of us will not be able to afford to get on the property ladder without help; more and more people are clubbing together with their nearest and dearest to buy a property together.
However, given that this is likely to be the biggest investment you will ever make in your life, there are some things you should be aware of to avoid the pitfalls and problems which can arise later when the relationship/partnership is less amicable.
Who will own what?
Make sure that from the get go, you have decided with your co-owner how the property will be owned – 50:50 is the usual assumption but anything goes as long as this is agreed by both parties. It may be that one will have a larger share because they are paying a bigger part of the deposit and will be making larger financial contributions to other expenses like the mortgage, repairs and home insurance.
If there is no written agreement between the co-owners as to what percentage split they will own, then litigation is likely to occur between the co-owners. If you are unfortunate enough to find yourself in this position, then often the party who can evidence their contributions to the expenses will put themselves in the best position to improve their stake in the property. If you are someone who is not very good at record keeping, or simply pay a lump sum to the other co-owner, then clearly you should ensure that the ownership percentage is accurately recorded.
The Purpose of the purchase?
Will you be buying with a view to living in the property together or will it be an investment to be rented out?
Again this should be agreed from the start. If things go wrong, then one factor which a court will consider when deciding the appropriate remedy is what the purpose of the purchase was for.
How is this reflected?
Once you have decided the division of ownership, then you need to ensure that the property is legally held in a way to reflect the agreement.
The first thing is always to ensure that all the actual (also known as beneficial) owners are registered on the property as the legal owners. If this is not possible for whatever reason, then you should at least have a legal document (called a Declaration of Trust) to protect yourself in the event of a dispute.
You can co-own a property in two ways: as a joint tenant or a tenant in common. Joint tenancy is the norm if you want to own in equal shares (regardless of initial contribution).
If the property is owned as joint tenants, then something called ‘survivorship’ applies. This means that your share will automatically pass to the surviving co-owner(s).
If you are tenants in common, when you die your share will pass to whomever you have bequeathed it to in your will (if you have one).
The law will always assume (unless otherwise stated) that shares are owned in equal proportions where there is more than one person on the legal title.
Most of the time that’s fine as that reflects what people agree and want. But not always. If you want division differently then you need to state this in a Declaration of Trust. A Declaration of Trust is a wonderful tool as it can set out who put what in, and who gets what out at the end, and they don’t have to correlate. It will reflect what parties agree and intend at the time and will be vital when things go wrong.
It is important to note that you can chop and change from one type of ownership to another, depending on your circumstances at any one time.
You can change the legal ownership from joint tenants to tenants in common by ‘severing’ the joint tenancy.
To do so you just need to serve a Notice of Severance on the co-owner and complete and file a form SEV (and potentially RX1) with the land registry. The good thing is that you can do this without the consent of the joint owner. It’s a relatively simple and low cost step.
To change from tenants in common to joint tenants is slightly more complicated and you will need the agreement of all co-owners. A guide to the steps is provided here.
If the relationship/partnership is no longer feasible and one person now wants out, then you may have agreed from the start, what happens in this scenario. It may be the remaining co-owner(s) will have to buy out the person who wants out. More likely than not, this may not have ever been discussed.
One legal co-owner will not be able to sell or force a sale without the agreement of all the other legal co-owners, unless they apply to court for an order for sale. These are difficult to obtain, especially if the other co-owners remain living in the property.
Get proper advice
You will need to get the right advice from the right professionals before embarking on the purchase of a property with someone. You should get independent mortgage and legal advice from your respective co-owners so that you are aware of all the consequences of co-ownership and can take appropriate steps to safeguard your interest.
If the property is to be legally held by more than one person, a lender is likely to require that all legal owners are party to the mortgage so that they are fully protected.
A joint account should be set up from which all joint expenses for the property can be paid, and so that you keep your own personal expenses separate. You can then also trace which party has made what contribution. If you do pay into a joint account, then you may want to reference each payment as to what it relates to i.e. “new boiler”, “service charge payment” “Council Tax” etc.
Buying a property is a big investment – of time, money and in some cases emotion. You need to protect that investment (now and in the future) and setting down the ground rules with your co-owners will minimise and hopefully avoid disagreements, conflict and litigation. It should also preserve the relationship/partnership if everybody knows where they stand from the start. Incurring legal costs at the start of the relationship/partnership to accurately reflect the ownership of the property may save you incurring significant legal costs fighting out ownership in the Courts at a later date.