In the UK, when you purchase a property with another person, you have the option to hold it either as joint tenants or as tenants in common. The key difference between these two types of ownership lies in how ownership is divided and what happens to the property if one of the owners passes away or in the event of a divorce.
Here, we’ll focus on tenants in common, a property arrangement that allows co-owners to hold distinct, specified shares of the property. This arrangement is commonly used when the co-owners contribute different amounts towards the property or wish to leave their share to different people in their wills.
What does it mean to be a Tenant in Common?
When two or more people own property as tenants in common, each co-owner has a separate share of the property, which can be unequal. For example, one person may own 60% of the property, while another may own 40%. These shares can be specified when the property is bought, or after the fact through a legal agreement.
Key features of tenants in common include:
Individual shares: Unlike joint tenants, where both parties own the entire property equally, tenants in common own a defined percentage of the property. This share does not need to be equal and can be based on how much each person has contributed towards the property’s purchase price or other agreements made.
Inheritance: If one tenant in common passes away, their share of the property does not automatically go to the surviving co-owner(s) as it would under joint tenancy. Instead, the deceased’s share will pass to their beneficiaries according to their will or, if there is no will, under the rules of intestacy. This allows for greater flexibility in estate planning.
Legal title: While each tenant in common has legal ownership of their share, the property itself is typically considered as a whole. The property cannot be divided physically unless all parties agree to sell or divide it.
How does Tenants in Common impact property division on divorce?
When a couple divorces and they own property as tenants in common, the division of property can be more complex than when it is owned jointly. Since each person owns a distinct share of the property, the process of splitting the asset depends on several factors.
Key property considerations during divorce:
Percentage of ownership: If a property is held as tenants in common, each spouse will retain ownership of their specific share. However, during divorce proceedings, the court may still decide to divide the property or its value in a way that is fair and equitable, considering various factors, including the contributions of each party, whether financial or non-financial, such as homemaking or child-rearing. The court will focus on meeting the needs of the parties and any children involved.
Sale of property: If one spouse is seeking to retain full ownership of the property, they may be required to buy out the other spouse’s share. This may lead to the sale of the property if neither party can afford to buy out the other.
Court’s role in division: The court has the discretion to decide how property is divided in a divorce based on fairness, taking into account each party’s needs. The fact that the property is held as tenants in common can provide clarity on the exact share owned by each party but does not automatically dictate how the property should be split in the context of a divorce settlement.
Benefits of being a Tenant in Common
Flexibility in ownership shares: This structure allows you to own a share of the property that reflects your financial contribution or other arrangements, which may be particularly useful for business partners, family members, or individuals with different levels of investment.
Estate planning: Being able to specify your share in a will means that tenants in common can choose who should inherit their share of the property. This is especially helpful for individuals who want to leave their property to children or other beneficiaries rather than to their co-owner(s).
Customisable ownership: Tenants in common offer greater flexibility for individuals who have different goals for the property, such as investment, inheritance, or future use.
Considerations for Tenants in Common
Risk of complicated sales: Since each co-owner owns a specific share, it can become challenging if one party wants to sell their share but the other(s) does not.
Potential for disagreements: When the property is owned by multiple parties with unequal shares, disagreements can arise over how the property should be managed, sold, or divided.
Inheritance complications: If one co-owner dies, their share of the property will pass according to their will (or intestacy laws), which may create complications if the other co-owner was expecting to inherit the whole property.
Tenants in Common FAQs
Q. Can tenants in common be unequal?
A. Yes, tenants in common can own unequal shares in a property, which is one of the key features of this arrangement. The percentage of ownership can be tailored to reflect each co-owner’s contribution or agreement.
Q. What happens if one tenant in common wants to sell?
A. If one party wishes to sell, they have the right to sell their share, but this may require the agreement of the other co-owners or a court order. The remaining tenants may also choose to buy out the seller’s share, if possible.
Q. What happens to the property if one tenant in common dies?
A. If one of the tenants in common dies, their share of the property will pass to their heirs as specified in their will or according to the laws of intestacy if there is no will. The surviving tenants do not automatically inherit the deceased’s share, unlike in joint tenancy.
Q. How does property division work in a divorce for tenants in common?
A. During a divorce, each person’s share of the property will be considered, but the court may adjust how the property is divided based on various factors, such as each person’s financial contributions, needs, and the overall fairness of the division.
Q. Can tenants in common be changed to joint tenants?
A. Yes, it is possible to change from tenants in common to joint tenants, but this requires the agreement of all co-owners and a legal process to amend the property’s title.
