Purchasing property is always a serious investment and even more so if you are buying property together with someone else. Whether you are buying property with your partner, friend, brother or sister it’s important you have the right type of ownership agreement.
There are two main types of ownership agreements:
- Joint tenants
Joint tenants own the whole property together. If one of them dies, ownership passes to the surviving tenant or tenants, you can’t sell or transfer your ‘share’ in a joint tenancy. This is the most common arrangement when a couple owns a family home.
In this situation, the property is owned equally, therefore may it be two owners or four, they all own an equal share of the property and should all be registered on the title. Therefore, when the property is sold, each joint tenant is required to sign the sale contract.
- Tenants in common
Tenants in common own individual shares in a property, and those shares do not have to be equal and can be altered at any time should the parties involved agree on the change. Shares in a common tenancy can be transferred to someone else.
Tenants in common don’t have the rights of survivorship like joint tenants. Should a tenant die the property will be distributed and transferred to beneficiaries according to the Will. This type of ownership is more common with investment properties and is often used when an investment property is purchased with a partner as there could be a tax advantage if the partner has a lower or no income.
Please note: Future borrowing – If you own a share in a property as tenant in common, a lender will count the whole debt on the property as your liability – not just your share of it. This could in turn decrease the amount of money they’re willing to lend you. This is an important reason to choose your tenants in common wisely.
The property title will specify what ownership agreement you have; joint tenancy is usually the ‘default’ type of ownership unless specified otherwise.
Laws governing ownership and investments are complex and it’s recommended that before entering into any arrangement you seek legal advice. A co-ownership agreement can prevent complications in the future if the arrangement turns sour and may include arrangements if a party wants to sell the house, refinance, be bought out, how to split income costs and mortgage repayments.
Purchasing a property is always an exciting and costly investment and peace of mind from ownership options and agreements should assure the process secures your interest.