If you’re planning on buying a property with a partner, friend or family member, you’ll be considering the different types of ownership available to you. A tenancy in common is one way to do this. Here we outline what a tenancy in common means, how it’s different to a joint tenancy and what a declaration of trust is.
A tenancy in common agreement is a type of joint property ownership, where each owner has a separate share in the property. It’s the preferred option for friends or relatives as:
In Scotland, this type of ownership is called ‘joint owners’.
For this type of ownership you usually need a joint mortgage. They are usually held by two people, however up to four people can apply for a joint mortgage. There are many types of mortgages, so it’s important to understand which one is best suited to you.
The main difference is how the ownership is shared. If you’re tenants in common, you own separate shares which can be of varying percentages. In a joint tenancy, you jointly own 100 percent of the property with the other owners.
A joint tenancy is usually preferred by couples as:
In Scotland, this type of ownership is called 'joint owners with a survivorship clause'.
Both types of joint ownership have advantages and disadvantages. A tenancy in common is a more complicated agreement than a joint tenancy, as the property it is not automatically left to the surviving owner(s). This means that if one person becomes ill, or cannot keep up with their mortgage repayments, the remaining owner(s) could face difficult circumstances. For example, if one tenant goes into care, their share of the property is usually passed to the local authority, making it harder for the person living in the home to sell it. This is where a deed of trust comes in handy for tenants in common.
A deed of trust, also known as a declaration of trust, is a legal document showing the financial details of a joint mortgage. For example, it will include how much each owner paid towards the deposit and what should happen if:
The declaration of trust for property is usually agreed on the purchase date. That way if circumstances change, it’s clear who’s entitled to what and you’re able to protect the money you’ve invested in the property.
A declaration of trust is a legally binding document, which means the owners cannot change the way the money from the property will be divided once it’s been accepted. The solicitor who created the deed will be able to advise you on how the information in it should be interpreted.
The declaration of trust will also detail who receives beneficial interest in the property i.e. the person who is entitled to its financial value. Joint owners of a property may want to separate the beneficial interest (who makes income from it) from the legal interest (who legally owns it).
Beneficial interest gives you the right to:
This is particularly relevant in tenancies in common if both owners own different shares in the property. For example, they can then specify one owner will receive 70 percent of the rental income from the property and the other 30 percent.
If one owner dies in a tenancy in common, their share of the property isn’t given to the other owner but passed to who they left it to in their will. If they didn’t leave a will and were married, their spouse would inherit their share. However, if they didn’t leave a will and were not married, the property share will go to their nearest surviving relative. There is a lot of legislation around this area, so it’s best to consult a solicitor.
If you’re interested in getting a joint mortgage, check your Experian Credit Score to find out how it could influence your chances of getting a mortgage.