Joint ownership of property – a practical guide for co-owners

The Institute of Fiscal Studies recently reported the proportion of 25 to 34-year-olds still living with their parents has increased by more than a third in nearly two decades. High renting costs and rising house prices are cited as the most significant reasons for the change, with many young people seeing this as the only way they will be able to consistently save for a deposit. 

Not all young people have the option to return to live with their parents whilst others may be determined to fly the nest and live independently. Although renting with friends or relatives is the most common housing option for the younger generation, the UK is seeing a growing trend of friends pooling their finances and co-buying property. For many this is the only feasible way of breaking the renting cycle and getting onto the housing ladder.

Co-ownership 

The Mortgage Advice Bureau conducted a survey of 1,001 prospective homebuyers in 2023. Of the 25-34 year olds surveyed, 25% said that they planned to buy a home with a partner, 10% with a friend, and 10% with a family member. Whilst the latter two options might be attractive to many young people, it's not risk free. In order to  appreciate the risks, it's important to understand the legal framework of property co-ownership.

Property can be owned in one of two ways:

1. Joint tenancy: each co-owner owns 100% of the property with the other, i.e. both have equal interests in the property. If one co-owner dies then their interest automatically vests in the survivor, this is known as the doctrine of survivorship. Married couples or long-term partners typically buy property as joint tenants.
2. Tenants-in-common: each co-owner owns a distinct share of the property as a percentage, the percentage is usually commensurate with the amount contributed to the purchase price, and ownership can be in unequal shares. Unlike joint tenants, tenants-in-common are free to do whatever they wish with their respective shares and so it's a very flexible ownership model. If one tenant-in-common dies then their interest will pass on either in accordance with the terms of their will, or in the absence of a will, the rules of intestacy.  

The risks of jointly buying a property 

Friends or family who buy together are generally legal owners of the property and the way the beneficial ownership is held is kept behind-the-scenes. This means that if circumstances change for one co-owner and they want or need to sell, then inevitably that has a direct impact on the other co-owners. 

All legal owners must agree to the sale of jointly-owned property; regardless of whether one legal owner has a larger financial share in the property than another. If a co-owner is not prepared to sell the property, this creates a stalemate and in the absence of any agreement, the only option is to apply to court for an order for sale, which can be an expensive and protracted process in the absence of a declaration of trust.

A declaration of trust is a document agreed by co-owners, which sets out their respective interests in the property and will often set out a mechanism for selling a property in the event of a breakdown of a relationship, or desire by one or more of the co-owners to sell. The nature and benefits of declarations of trust is considered further below. In the absence of such document, the court could be asked to determine the parties’ respective interests, how much they receive from the net sale proceeds, and the mechanism for a sale. This determination will often turn on any evidence the parties have i.e. their recollection of what was agreed when purchasing the property and consideration as to who contributed what. This will inevitably increase the litigation costs. 

Orders for sale 

When exercising its discretion as to whether to make an order, the court will have particular regard to:

• Why the property was purchased 
• The parties’ intentions at the time of purchase 
• If there are any occupants under 18
• The interests of any mortgage company

The court is not under an obligation to make the order and the party wishing to sell could find that they are unable to do so if discretion is not exercised in their favour, or that an order is made, but is delayed to some future date. The court will, however, take into account the wishes of each of all the co-owners who would be entitled to occupy the property.

What potential co-owners need to know

The important factors to consider are:

• Whether they are making equal contributions to the deposit/purchase price and/or any mortgage repayments.
• Whether one co-owner is to have a larger share in the property than the other.
• The logistics of one co-owner wanting to sell in the future: for example would they have sole/joint conduct of the sale, the mechanism for selling (agreeing a sale price and agent) and how would the net proceeds of sale be applied etc.
• The process of one co-owner deciding to move out of the property: does this trigger the sale of the property or does the occupying party pay the non-occupying party rent for their share, or pay the mortgage - as well as all other household expenses such as utilities, council tax and insurance.
•  How the co-owners will deal with the maintenance costs of the property, such as the costs of the repairs, if only one co-owner is occupying the property.
• What would happen if the occupying co-owner invites someone to cohabit in the property with them and whether this would be a trigger for a sale.
• If one co-owner dies would they want their interest to pass to their co-owner or would they like to decide who inherits it.

If the above factors are a concern then co-owners should consider holding the property as tenants-in-common and entering into a declaration of trust. 

Declarations of trust 

The declaration of trust comes in many forms. It can either be a straightforward document setting out the co-owners’ respective interests or it can be a more bespoke document catering for various scenarios. The latter would be advisable for young people buying together as there is greater probability of their personal circumstances changing in the future and necessitating the need to move on for example new relationships, redundancy, marriage, children etc.

The benefit of a declaration of trust is that it's a legally binding document and therefore minimises the of risk of litigation. Whilst it may seem like an unnecessary expense at the time of purchasing a property it is far cheaper than engaging in protracted disputes over the sale of the property and/or your respective interests.

No one ever wants to discuss what may happen in the future, or contemplate that disputes may arise, but prospective co-owners need to have open and frank conversations early on. These discussions, however awkward, could save the parties’ substantial costs later down the line. 

For further information or advice, please contact Victoria Bonnet or Amelia Pine in our property litigation team.