Joint Ownership of Property
When a property is owned by two or more people, the decision of whether it is owned with them being joint tenants or tenants in common is incredibly important. And, if they are tenants in common, they will also need to decide whether it will be held in unequal or equal shares. It is important to note that this decision relates on to the equity in the property (the money left over when the property is sold and the secured debts and costs of sale have been taken out) – the legal title (the right to mortgage or transfer ownership of the property) can only ever be held as joint tenants.
The decision between the two types of ownership, joint tenants or tenants in common, will reflect what happens to the property when one of the joint owners dies and will determine who will receive the share in equity (the amount of money that would come out of the property sale) of the deceased and what needs to be done to sell the property.
If it is decided that the property is to be held as joint tenants, this means that all of the joint owners are entitled to all of the equity. Thus, when one of the joint tenants dies, the entire equity is passed on to the survivors, and when there is only one joint tenant left, this means they can take away the whole equity of the property and the trust is ended. This is even the case if the deceased’s will states otherwise as the equity will have already been passed to the other joint tenants before the will comes into play.
Tenants in Common
The equity of a property is instead held in shares when a property is owned as tenants in common. This makes it possible to indicate if there are to be unequal or equal shares. Should no shares be indicated and no evidence can be provided, equal shares will be assumed between the tenants in common.
When one of the tenants in common dies, their share won’t automatically transfer over to the survivor(s) as it does with joint tenants but will instead go through the deceased’s will. If there isn’t a will, the rules of intestacy will be enforced. Here, only the shares will pass over to the allocated party, the legal title will not.
Death of a Joint Proprietor
Joint tenants must always hold the legal title; tenants in common can only hold the equitable title. This means that when there is one sole survivor upon the death of a tenant in common, he does take full ownership of the legal estate despite not obtaining the equity share that has been left. In these cases, the surviving tenant in common will be able to deal with the legal title as he wishes; i.e. gift, mortgage, sell etc. He holds the property on trust for the beneficiaries that have been stated in the deceased’s will and for himself.
Should joint proprietors decide to hold the property as tenants in common, the Land Registry should receive a restriction notification in order to protect the rights of the beneficiaries. This will be registered automatically when the transfer to the proprietors states that they will hold the property as tenants in common. This restriction will then mean that a disposition (a mortgage or transfer for example) cannot be registered by a sole proprietor.
For the sole surviving tenant in common to sell the property and remove this restriction they can appoint a second trustee, which can be done by a separate deed or in the transfer. When the proprietor and the trustee sign the transfer, the proceeds from the sale will be received jointly. The trustee and the surviving tenant in common must then take the responsibility of ensuring that the beneficiaries are provided with their share.
If the beneficiaries do not receive their shares, the proprietor will be protected from any claim they make so long as two or more trustees have received payment of the purchase money.
Changing from Joint Tenants to Tenants in Common
Sometimes, those who have entered into the property as joint tenants may want to change to tenants in common; such as a couple who are separating but aren’t wanting to sell their home straight away. To do this they must sever the joint tenancy by one party serving a notice of severance to the other.
Form SEV can be used to do this for those properties that are registered with the Land Registry and it doesn’t require both parties to be in agreement about the severance. If a notice of severance is serviced on the other joint tenant, it will be severed.
The automatic severance of a joint tenancy can sometimes occur automatically in cases such as bankruptcy. If one of the joint tenants becomes bankrupt then their share in equity will now belong to the trustee in bankruptcy.
You cannot swap from being tenants in common to joint tenants.
Removing a Form A Restriction
Occasions do arise where someone will want to remove a Form A (Tenants in Common) restriction and this will normally happen when a property is owned by tenants in common but is then transferred to one of the joint owners for them to become sole owner. The restriction is in place in order to prevent a transaction, i.e. a mortgage or sale being registered unless it is being done by two or more trustees.
This restriction will not prevent the transfer from two names to one as both joint owners can sign; however, if the sole owner then decided to mortgage the property this new mortgage would not be registered by the Land Registry as the transaction is only being done by one trustee (even if this was done to coincide with the transfer). This will also be applicable if the remaining owner tried to sell.
In order to remove a Form A restriction, two things must be done. Firstly, Form RX4 from the Land Registry will need to be signed by the owner(s), followed by them swearing a ‘Statutory Declaration as to Equitable Title.’ This provides a sworn statement of fact when they ‘swear’ (sign) this in front of a solicitor and is confirmation that the owner has full entitlement to the property equity and any third party who isn’t named on the title will not be. In order for this to be valid, it should be drafted by a solicitor as it will need to be worded in a particular way. This cannot be done by the same solicitor who was present during the declaration.