Joint Tenants and Tenants in Common
If two or more people own a property jointly it is important they decide whether they want to hold it as joint tenants or as tenants in common and if tenants in common, whether they want to hold it in equal or unequal shares. Joint tenants or tenants in common relates to the equity in the property. The legal title (the right to transfer or mortgage the property) can only be held as joint tenants. (See HM Land Registry).
Whether a property is held as joint tenants or as tenants in common makes a difference to what happens to the property on the death of a joint owner, both in terms of who is entitled to the deceased’s share in the equity (the money which would be released if the property was sold) and what steps need to be taken to sell.
What is Joint Tenants?
If a property is held as joint tenants, then the joint owners are both entitled to the whole of the equity. To understand this, imagine that when buying a property, the joint tenants create an imaginary holding company (a company being a single legal entity made up of its directors) for the purpose of owning the property.
The effect of this is that on the death of one the joint tenants the whole of the equity passes to the survivors, irrespective of any provision to the contrary in the deceased’s will (a will only takes effect upon death, at which point the equity has already passed to the survivors). When only one joint tenant remains he is entitled to the whole of the equity and the trust comes to an end.
What is Tenants in Common?
When a property is held as tenants in common the owners hold the equity in shares. It is possible to specify that they are to hold the equity in unequal shares. If no shares are specified and if there is no evidence to the contrary, it is assumed that the tenants in common hold in equal shares.
Upon the death of tenants in common, their share passes not automatically to the survivor as with joint tenants but via the deceased’s will or, if there is no will, via the rules of intestacy. Only the equitable share passes however, not the legal title.
Death of a Joint Proprietor
As mentioned in the first paragraph, only the equitable title can be held as tenants in common. The legal title must and will always be held as joint tenants. This means that on the death of tenants in common where only one survivor remains, although the survivor does not acquire the equity share left by the deceased, he does become the sole owner of the legal estate. This means he and he alone has the right to deal with the legal title (sell, mortgage, gift etc). He holds the property on trust for himself and the beneficiaries under the deceased’s will.
In order to protect the beneficiaries, when joint proprietors originally decide to hold a property as tenants in common a restriction should be registered at Land Registry. Where the transfer to the proprietors indicates they wish to hold as tenants in common this restriction will be registered automatically. The effect of the restriction is that a disposition (i.e. a transfer or mortgage) by a sole proprietor cannot be registered.
To get past this restriction and sell the property, the sole surviving tenant in common can appoint a second trustee along with himself. This can be done either in the transfer or by a separate deed. The trustee then signs the transfer along with the proprietor and receives the sale proceeds jointly. It is then the responsibility of the trustee together with the surviving tenant in common to ensure that the beneficiaries receive their share. As long as the purchase money is paid to two or more trustees the purchaser is protected from any claim that the beneficiaries might have if they do not receive the money they are entitled to.
Can I Change from Joint Tenants to Tenants in Common?
Sometimes two people will initially hold a property as joint tenants and later decide that they want to be tenants in common, for example a couple might separate but decide they don’t want to sell the property immediately. This is known as severing the joint tenancy and is done by one party serving a notice of severance on the other. For properties registered at Land Registry there is a form, form SEV, which can be used. It is not necessary for both parties to agree to the severance; as long as one serves notice of severance on the other the joint tenancy is severed. (See Land Registry Form SEV).
Severance sometimes happens automatically, for example where one of the joint tenants becomes bankrupt. This is because the bankrupt’s share in the equity then belongs to the trustee in bankruptcy.
It is not possible to swap from tenants in common to joint tenants.
Removing a Form A (tenants in common) Restriction
There are occasions when you will want to remove a Form A restriction. Most commonly this happens when a property is held as tenants in common and is then transferred into the sole name of one of the joint owners. The effect of the restriction is to prevent a sale or other transaction (such as a mortgage) being registered unless it is by two or more trustees. It will not prevent the transfer from two names to one because both joint owners will sign as the transferors however if the remaining owner then wishes to mortgage the property (even if the mortgage is taken at the same time as the transfer) the Land Registry will not register the new mortgage as the transaction will only be by one trustee. The same would apply of the sole owner attempted to sell.
Two things are required to remove a form A restriction. First, the owner or owners need to sign Land Registry form RX4 and second, the owner(s) needs to swear a “Statutory Declaration as to Equitable Title”. Swearing means signing in the presence of a solicitor and a statutory declaration is a sworn statement of fact, like an affidavit. The statement confirms that the owner(s) is fully entitled to the equity in the property no third party not named on the title is entitled to a share. To be valid it needs to be worded in a particular way and should be drafted by a solicitor. Note that the solicitor in the presence of who the declaration is sworn cannot draft the document.
If you are not sure whether you own you home as Joint Tenants or as Tenants-in-common, or would like further information, contact me here or call me on 079 888 30691 and I will check for you. No charge.