Tenants in common vs Joint tenants – Which is better?

Deciding to buy a home with someone is a big financial step. People realise that once they own a home together it can be difficult to sort out matters if they separate.

What happens if one person provided most of the deposit for the home purchase to start with?
Do they get more of the house if things go wrong? Is this fair?

Even though separation is difficult thing to think about when things are going well – it’s important to plan for the worst now when going into the buying process so that there are no complications in the future.

It’s also important to have formalities in place if one of the homeowners passes away unexpectedly. This is where the question of tenants in common vs joint tenants comes into play.

What could go wrong?

You might think that after buying a house together everything should seem straightforward. People should understand that you both collectively own a home.

But this isn’t as clear as you might think – at least not in the eyes of the law.

For example, if you decided to separate in the future and sell the home, you may not be entitled to half of the value. In another example, if you are in a relationship and one of you passes away you may not be entitled to your partner’s half automatically.

There are two main types of ownership in the UK: Joint Tenants and Tenants in Common. The words are unhelpful and confusing – no one is a tenant in the sense of renting anywhere, it’s old English terms being used. But we explain them in modern day language below.

What is a joint tenancy?

This is the most straightforward of the two methods.

In a joint tenancy both parties own the whole property together. It is the more traditional way of owning a property.

If the home buyers decide they want to go their separate ways in the future and sell the property -the sale proceeds are split in half. There is no consideration given to how much money each party put in at the start.

If one of the home owners die, the deceased person’s ownership of the property would pass straight over to the other – this is called survivorship rights.

Setup
Joint tenancy tends to be the simpler of the two types from a setup perspective.

Pros of joint tenancy

Equality
A joint tenancy is a good option for individuals who want the other partner to benefit equally to them.

Both owners will need to agree if the property is to be sold in the future. Otherwise the courts will have to be involved.

If the home is sold in the future, each partner would get an equal share. Joint tenancy also provides the other partner with security over their home in the event that one partner dies.

Security
Although difficult to think about, there are regular cases where disputes occur in the UK as a result of families falling out. In this case the existence of a joint tenancy can help to secure the surviving partner’s right to keep the home.

What are tenants in common?

Tenants in common can be more useful when your situation is not a plain vanilla type of setup.

Imagine a situation where one partner contributes the entire deposit to the house while you both pay off the mortgage. Would it be fair for each partner to get 50% of the home when the person paying the deposit is significantly out of pocket?

Perhaps one partner wants to have their share of the property passed down to children instead of leaving it to the other partner? In a joint tenancy this is not an option.

Different Shares
Tenants in common allows both partners to divide up the ownership of their home, but the ownership portions do not have to be equal (for example 25%:75%). This can greatly help with matters if the relationships between two partners break down and they want to sell the home.

Different Estates
Tenants in common also has an important legal aspect. Each partner’s share of the home will form part of their individual estate. In this setup, the share of the home that belongs to a partner who dies will be passed to the persons specified in their will (assuming one is made). This can mean that one partner may want their children to have their share of the home but still have their surviving partner to stay in the house.

Pros of tenants in common

Proportionality

Tenants in common allows both parties to keep their own interests in the property distinct so any future separation or death becomes easier to administer.

Good if not committed

For some people – living together is a huge step. People have different habits which can drive others crazy. And some people don’t realise they need a lot of their own space before moving in with someone.

If things don’t work out, a tenants in common arrangement can avoid big arguments over ownership split when you have many other things on your mind – like where you live next.

Which is better?

It really depends on what priorities the buyers have. The default route is to have a joint tenancy agreement. However with home ownership becoming much more complicated than it was many years ago, sometimes a tenants in common agreement is better to iron out potential issues such as differing levels of ownership or protecting each side’s interests.

It tends to be the case that joint tenancy arrangements are done between spouses or partners in a relationship whilst tenants in common are done for home buyers who are friends.

What is a deed of trust?

If you do decide to go with a tenants in common arrangement you will need to formalise matters with a deed of trust (also called a declaration of trust).

This document acts like a roadmap to explain various items including:

How much money each person contributed to the deposit
How much each person will pay each month on the mortgage
What proportion each person would get on sale of the property
What happens if one party wants to move out of the home and the other wants to stay

A deed of trust can also be used to protect a deposit that is gifted from a family member. In a relationship breakdown the relative of the family member who purchased the home would be able to keep their initial gifted deposit to themselves.
It is worth getting some help from a solicitor to do this.

What if you change your mind?

If you have already selected one option and want to change your mind – don’t panic.

You can change your arrangement from a joint tenancy to a tenants in common or the other way around. Some documentation will need to be prepared by your solicitor and they will also need to file forms with the land registry.

This post is for information purposes only. We recommend seeking professional legal and financial advice before you decide on which ownership option to pursue for your house purchase.