Shared Ownership Conveyancing explained
Shared Ownership Conveyancing can sometimes appear unnecessarily complicated to homebuyers. Your Conveyancing Solicitor will ask if you are intending to own the property as joint tenants or tenants in common – but as you are buying a property, not renting it, what does all this talk of being tenants mean?
Likewise your Solicitor may recommend that you have a trust deed – again you are buying a home for yourselves, not for anyone else, so why this talk of trusts? (if you were buying a property for someone else, then a trust would clearly be appropriate, but this article assumes that two or three people are buying a home to live in themselves, or as a buy-to-let investment. )
It would be easy to assume that these are just ways in which the legal profession makes things complicated, probably with a view to racking up the charges. But ownership of a house and land is more complicated than owning physical objects, and problems can arise when two people own the same property.
Trusts and Shared Ownership
English land law has adopted the concept of trusts to deal with Shared Ownership of land. At its simplest, creating a trust involves property being vested in one or more persons, called trustees, to hold it in trust for another person, called the beneficiary. The trustees are said to own the legal estate and the beneficiary has an equitable interest.
When two or more people share ownership of a home present-day law provides that they hold the legal estate as trustees for themselves as beneficiaries on a Trust of Land (as defined in the Trusts of Land and Appointment of Trustees Act 1996. ) http://www.legislation.gov.uk/ukpga/1996/47/part/I the interest of the beneficiaries is called the equitable (or beneficial) interest.
The meaning of joint tenants and tenants in common
English law now provides that the legal estate held by co-owners as trustees is indivisible, and is always owned by them as joint tenants in undivided shares. Each co-owner therefore jointly owns the whole legal title, rather than having a specific share. The word ‘tenant’ in this context is used in its original sense of someone who owns or ‘holds’ land, rather than its general modern sense of someone who leases or rents a property.
[technical note – no more than four people can own the legal estate at any one time. This is normally sufficient for purchasers buying a home to live in, but if there were more than four the property would have to be transferred to four of them as trustees, with the interests of the others being protected by a trust deed as mentioned below. ]
However the equitable interests of the co-owners can be held either as joint tenants or tenants in common. Joint tenants will own the whole equitable interest in undivided shares, but tenants in common can own specified shares, and can to some extent deal with these separately.
A feature of joint tenancy is that when one owner dies their share automatically passes to the survivor. This rule will always apply to the legal estate, since that must be held as joint tenants, and cannot be varied by will or otherwise. The same rule will also apply to the equitable interest if this is also held as joint tenants.
Tenants in common can agree to hold unequal shares – perhaps when one is contributing more to the purchase price than the other – but this must be specified at the time of purchase. It can be done in the transfer deed, or set out in a separate trust deed. Tenants in common may deal with their shares on an individual basis and without the consent of the other co-owner, such as leaving their share by will.
Traditional wisdom has been that a married couple (which now includes civil partners) should hold as joint tenants, while anyone else should hold as tenants in common. However this is entirely a choice for the parties. As married couples now often have children by previous marriages to consider, it has become more common for them to hold as tenants in common.
Why Shared Ownership Solicitors often recommend trust deeds
If I own a house outright in my own name, then I can do with it what I like. I can sell it when I want to, or leave it in my will to anyone I like. But if I share ownership with someone else several questions may arise, for instance:
- are we both entitled to live in the property?
- can I transfer my share to someone else?
- if I die, does my co-owner take my share, or can I leave it to someone else?
- If we both agree to sell, do we have to share the proceeds equally even if I contributed more to the original price than my co-owner?
- if we are buying to let, how are the income and expenses to be shared?
For this reason when there is Shared Ownership, Conveyancing Solicitors often recommend that the parties set out their requirements in the form of a trust deed. This is especially useful where co-owners do not have any other legal relationship, such as being married. Such a deed cannot cover all eventualities, and will not necessarily avoid disputes.
The courts have various powers relating to Shared Ownership property, and a trust deed may not necessarily override them. This is especially so for matrimonial property. However a deed will provide a framework to which the courts can refer in the event of a dispute.
Conveyancing Solicitors need to know how a Shared Ownership property will be held, as the land registry has to be informed when the title is registered. The land registry is not concerned about trusts of land as such, but when property is to be owned by the buyers as tenants in common the registry will put a restriction on the register as follows:
No disposition by a sole proprietor of the registered estate (except a trust corporation) under which capital money arises is to be registered unless authorised by an order of the court.
The purpose of this is to prevent the property being sold by a single owner when there are beneficiaries who still have an interest in the property.
When the property is shared as beneficial joint tenants, the land registry will not make any note on the register. On the death of one owner their share automatically passes to the survivor, bringing the trust to an end. Consequently the surviving owner can sell the property in his or her own name without the need to appoint a further trustee.
Shared Ownership Conveyancing Fees
Conveyancing Solicitors should not normally charge any additional Conveyancing fees when buyers wish to purchase in joint names, but will charge extra when a trust deed is required.
If you think a trust deed is needed, discuss this with your Conveyancing Solicitor and ask for a quote for any additional costs before agreeing to proceed. The costs for such a deed can vary according to the complexity of your requirements. Most firms can now have standard forms which cover the most common situations and if one of them can be utilised the costs should be modest.
When joint purchasers have a mortgage, the Solicitor will need to carry out bankruptcy and ID checks against each buyer. Some law firms may pass the cost of these searches on to the clients, in which case you should be clearly informed of this at the start of the transaction. The Conveyancing Solicitors who Fridaysmove works with do not pass on any such costs to clients.
Mortgages and other transactions involving Shared Ownership property
Generally speaking any mortgage on shared ownership property will be in the joint names of all co-owners. This means that they are jointly and severally liable for all money due under the mortgage, i.e. the lender can sue both of them or either of them separately.
Once a shared ownership property has been acquired, various other transactions between the joint owners are possible. These are covered in a separate article.
Shared Ownership Conveyancing Quote
When requesting a quote for Conveyancing fees, make it clear if the property is to be purchased in joint names. Normally a quote will not include any additional fees for preparing a trust deed, so if you think one is needed ask for this to be included in the quote.