Mastering Shared Property Ownership

Part 1 – Fundamentals relevant to the purchase

This is the first of a series of articles by Birketts and Citystay Property Agents, aimed at guiding you through the complexities of shared property ownership. In this inaugural article, we:

• Provide top tips for prospective property buyers.
• Explain the legal foundations that govern property co-ownership.
• Outline the key points to consider during the acquisition process.
• Provide recommendations on how to prevent future disagreements over the property.

Practical aspects to consider when buying a property

As with any large-scale project, when you buy a property, planning is crucial. In this section, we provide a short checklist of practical considerations that you should think about as you start to explore the housing market.

1. Budget: The first step is to determine your budget. Unless you are a cash-only buyer, this will likely mean taking out a mortgage.

2. Mortgage: Navigating the vast array of mortgage products can be complex and intimidating. It’s advisable to consult with a mortgage broker at the earliest opportunity. Expert advice can help you to understand how your deposit and borrowing capacity work together to determine the value of the property you can afford.

3. Expenses: Other expenses associated with a property purchase include solicitor’s conveyancing fees, Stamp Duty Land Tax (SDLT), and insurance. In cases of shared property ownership, it is also sensible to budget for the costs of a Cohabitation Agreement to safeguard all parties involved. You can find out more about the advantages of a Cohabitation Agreement by watching our video here.

4. Criteria: Once you’ve assessed affordability, the next step is to identify what you’re looking for in a property. Factors include location, neighbourhood, environmental aspects, and the size and type of the property.

5. Viewings: With budget and search criteria in mind, you can start to view properties. We recommend maintaining a checklist of questions to ask during viewings, covering aspects like accessibility, property maintenance, monthly running costs, noise levels, neighbour disputes, and proximity to amenities. A competent agency will be able to highlight the key features of the property to ensure buyers are well-informed.

6. Offer: Take all the above factors into account when making an offer. Transparent agencies will also provide information about a property’s interest level and the potential timeline for completion.

7. Solicitors: As your offer will be contingent on satisfactory surveys, contract terms, and your ability to proceed, we recommend engaging a reliable solicitor and ensuring your mortgage is approved in principle. Having everything in order will make you a more attractive buyer.

8. Exchange and completion: Once an offer is accepted, the process moves to exchange and completion. To ensure that the process runs smoothly, stay alert and responsive to any communication from your solicitor during this time.

Citystay Property Agents are available throughout the selling and buying process, providing honest, transparent and regular communication to all parties. We believe this is key to reducing any stress associated with the process. Our extensive local knowledge and partnerships with trustworthy third parties offer a refreshing and positive perspective.

The legal foundations governing property co-ownership

When a property is purchased by two or more individuals, a land trust is automatically established under the Trusts of Land and Appointment of Trustees Act 1996 (TOLATA), without any additional action required on their part. The legal owners, therefore, become trustees who hold the property in trust.

Often, the owners hold the property in trust for themselves, either in equal or unequal proportions. Alternatively, owners may hold a portion of the property in trust for another person. The people who stand to benefit from the trust are known as the beneficiaries. It is the beneficiaries who are entitled to the equity in the property, and so have the right to occupy the property and receive the proceeds when the property is sold.

Key points to consider during the acquisition process

It is partly for this reason that your conveyancer will ask whether you wish to hold the property as ‘tenants in common’ or ‘joint tenants’. A joint tenancy means that the beneficiaries own the property equally, whereas a tenancy in common can be held in either equal or unequal shares.  Thus, if you prefer not to own the property in equal shares, you should opt for a tenancy in common.

The respective shares in the property are usually declared at the time of purchase and are specified in the Transfer Form that you sign. This form includes a section with three tick-box options for declaring the trust:

1. The property is to be held in trust for the transferees as joint tenants.
2. The property is to be held in trust for the transferees as tenants in common in equal shares.
3. The property is to be held in trust in some other way.

If you wish to hold the property in unequal shares, you might consider selecting the third option and specifying the different share amounts. Alternatively, you could instruct a solicitor to prepare a separate trust deed, which would be appropriate for more complex arrangements, including the ring-fencing of deposits.

Regardless of your choice, ticking one of these boxes in the Transfer Form will serve as an express Declaration of Trust. Contrary to what you might think, a Declaration of Trust does not need to be a separate standalone document; this seemingly insignificant tick box carries the same legal weight.

This is important, as an express Declaration of Trust is usually determinative on the beneficial ownership. This means that any subsequent changes in the circumstances, such as who pays for what, are unlikely to alter the respective shares in the property, as previously declared in the Transfer Form.

Unfortunately, disputes can arise between co-owners (and potentially third parties) over the ownership of the property’s equity. In such cases, the court can ultimately determine the beneficial shares under section 14 of TOLATA. Litigation under TOLATA can be particularly onerous, both emotionally and financially.

What measures can be taken to circumvent potential issues?

Disputes over home ownership are intricate, with a vast array of case law interpreting the application of TOLATA, adding subtleties that are crucial to understand. This is particularly true of cases where no express Declaration of Trust exists. In such circumstances, different legal principles will apply to those described above, using hinging on inconsistent and fragmented memories of verbal discussions from years past, and a forensic look through documents, such as historic text messages.

To help head-off these problems at the outset, it is recommended that buyers:

1. Create an express Declaration of Trust, either through a separate trust deed for more complex arrangements, or by marking the appropriate box in the Transfer Form.

2. Enter into a Cohabitation Agreement to clarify your shared living arrangements, including:

• The division of mortgage payments and other expenses.
• The funding of any property repairs or improvements.
• The course of action if the parties decide to part ways – including options for an open market sale, or the right for one party to buy out the other.
• The division of furnishings and other shared items.
• The handling of bank accounts, gifts, pets, etc.

Birketts, have a dedicated Home Ownership Disputes team specialising in TOLATA disputes and the drafting of Cohabitation Agreements. You can watch their YouTube video outlining the benefits of Cohabitation Agreements here.

At Citystay Property Agents we are a full-service residential estate agency based in Cambridge. Our fresh perspective is built upon a customer centred approach, ensuring the best outcomes for all of our clients.