Buying a property with friends
Laura Mather 12-10-2016
With house prices soaring and wages stagnating, buying a property with friends can be a great way to get yourself onto the property ladder. However, there can be legal pitfalls for all of you, and decisions should be made about how the property is held, to avoid problems arising in the future.
When you are buying a property with another person your solicitor will asked you if you want to purchase the property as "joint tenants" or "tenants in common". These are very different legal arrangements, and so it's important that you understand the decision you are making.
What are joint tenants?
Joint tenants both own the whole of the property. This is important because when you own a property as joint tenants, if one co-owner dies, the property automatically passes to the survivor, who will then own the property outright. This is the case, irrespective of what is stated in the deceased's will.
If you already own a property with someone lese as tenants in common, you can change the arrangements so that you hold the property as tenants in common, if you would like to do so. You should take legal advice about this however, to ensure that an expert property lawyer gives you the advice that you need.
What are tenants in common?
Where the property is held by the owners as "tenants in common", each party has their own distinct share in the property. This may be in equal shares or unequal shares. It means that you could own half of a property, or a smaller or larger percentage of it. When a co-owner of a property held as tenants in common dies, his or her share will pass to their beneficiaries in accordance with the terms of their will, or, if they don't have a will, under the intestacy rules.
Is it better to hold property as joint tenants or tenants in common?
There are many reasons why you may wish to own a property as tenants in common. For example, one of the buyers may be putting in a larger sum of money towards the purchase of the property, there might be family members helping one of the purchasers with their share of the purchase price, or you may simply want to protect your interest in the property when it is sold or when you die.
It is possible that you are buying a property with your partner after a second marriage and you might want to ensure that your share of the property passes to your children, rather than to your second wife or husband. In those circumstances, holding the property as tenants in common will be very important for you.
Where buyers hold a property as tenants in common, the ownership shares of the property are recorded in a legal document known as a Declaration of Trust.
What if I fall out with my co-owners?
Disputes between co-owners of a property can arise for many reasons. It might be that a relationship breaks down, or one might want to sell and the other might want to stay at the property. You might find that after you sell, there could be an argument about how the proceeds of sale are divided. This can lead to lengthy and costly legal proceedings, many of which can be avoided if you have a properly drafted Declaration of Trust in place.
If you have fallen out with your co-owners, and you don't have a Declaration of Trust in place, you should seek legal advice as quickly as possible, to try to resolve the issues between you before the dispute escalates into a costly legal case.
If you are about to purchase a property and would like to draw up a Declaration of Trust, or if you hold your property as joint tenants but would now like to hold the property as tenants in common, then contact one of our private client team who would be happy to assist you.