Own a house with your spouse? No, this is not the start to a Dr. Seuss poem! This is a blog focusing on domestic co-ownership and how you could be affected by joint tenancy. Commercial co-ownership can be slightly different, and I will aim to address this in a future blog.
So, what exactly does joint tenancy mean? Whenever there is co-ownership of property, there is a trust in land. This means there is a separation between the legal and equitable titles to that land. In basic terms, the legal owners can ‘deal’ with the land - sell it, rent it, redevelop it etc. However, the equitable owners are the people who are entitled to receive the benefit of that dealing, usually by way of sales proceeds and rent. Often the legal and beneficial owners are the same people, but this is not always the case.
Legal title will always be held in joint tenancy. The equitable title on the other hand can be held either in a joint tenancy, or a tenancy in common.
A joint tenancy is where the right of survivorship applies. If you die with a joint tenancy of the equitable title, the surviving joint tenants will receive your equitable interest equally. If two people have a joint tenancy and one dies, the other will therefore receive the deceased’s equitable interest but the right to survivorship no longer applies and the survivor becomes the sole equitable owner (and usually the sole legal owner as well).
Tenancy in common on the other hand is where you own your own interest in the property. Therefore, when you die, that interest remains within your estate. It does not pass automatically to the other joint tenants but instead you can direct what happens to it via your Will.
In the case of estate planning, most clients who I deal with are spouses and this blog will therefore largely address spousal co-ownership. However, the comments equally apply to co-ownership between unmarried couples, friends and business associates.
If you and your spouse have ever discussed Wills with a solicitor, you may have been asked the nature of your interest in your house…
By way of example: if you are married/in a civil partnership and buy a house together, it is assumed the equitable interest in the house will be held in joint tenancy unless there is contrary intention (Stack v Dowden). If one of you were to die, the right to survivorship would end, meaning the other is now the sole equitable and legal title holder. Consequently, 100% of the equity in the property belongs to the survivor’s estate and can be distributed accordingly under their Will or under the intestacy rules (if they have no Will).
Alternatively, if you sever the joint tenancy with your spouse, it would mean that you both hold your own personal shares in the property via a tenancy in common. It will be assumed that you each own 50% of the house respectively unless you expressly agree otherwise (or evidence can be produced to the contrary). So, upon the first death, the survivor would not gain their spouse’s share, instead the deceased’s share would remain with their estate and be distributed in accordance with their Will or intestacy rules.
Quite often though a spouses’ Will simply leaves everything to the surviving spouse anyway, achieving the same effect as a joint tenancy. So why the big fuss?!
There are circumstances where spouses might choose to hold property as tenants in common. This is often the case in second marriages, especially where parties have children from previous relationships and wish firstly to allow their spouse to continue living in a property after their death but ultimately to protect the capital for their respective children. Alternatively, it could apply where a property is bought between friends who may wish their share to pass to their family rather than each other.
A tenancy in common also allows you to accurately record differing interests in a property when each co-owner invests different amounts to the purchase price. For example, if you contributed 65% of the purchase price, a tenancy in common (accompanied by a suitable Declaration of Trust) would allow you to record and vouchsafe a 65% equitable interest in the proceeds of sale. This is also why a tenancy in common is useful for investment properties, especially for unmarried couples or friends / business associates.
Alternatively, there are cases where spouses own their property as joint tenants but, over time, their circumstances change and it may be appropriate to ‘sever’ that tenancy to become a tenancy in common instead. This is typically where, as part of an estate planning exercise, those spouses wish to incorporate trusts in their Wills. Trusts are incorporated into Wills for a variety of reasons, of which safeguarding for care fees, maximising the residential nil rate band, and generally protecting wealth for future generations, are amongst the most common. As I have previously blogged about here, great care must be made when trying to mitigate care fees and professional advice should always be sought in these circumstances.
Alternatively, if you feel your relationship is breaking down, you should consider severing your joint tenancy and updating your Will so that your interest in the property does not pass automatically to your spouse. I would always advise taking specialist advice in those circumstances before taking any action.
If you are not sure if you have a joint tenancy or not, are considering whether to sever your joint tenancy, or don’t know how to sever your joint tenancy; Allan Janes can provide professional advice to help you. Please do not hesitate to contact Alex Stanier on 01494 893 533 if you have any queries about this.