Property co-ownership: how to hold property?
This is an often overlooked or misunderstood question, but a very important one for anyone who co-owns a property or land in the UK.
The simplest form of home ownership is sole legal owner and there is nothing to declare to the Land Registry in this scenario. If there is more than one party purchasing a property then you will need to decide how to hold the property. This could be by reason of a purchase, or for example, inheritance. You can hold the property either as beneficial joint tenants or tenants in common.
If you decide to hold the property as joint tenants, both of you will own the entire property and you will have equal rights. You will not each hold a quantified share in the property and will not be able to leave a share of the property in your Will.
If you sell the property, or for example if your relationship breaks down, it will be presumed that you both own the property equally, regardless of your respective contributions to the purchase price and associated costs such as stamp duty and fees. On the death of one co-owner, their interest in the property would automatically pass to the remaining co-owner(s) without any further action regardless of what may be stated in their Will. The surviving co-owner would then own all of the property and on their death it would form part of their estate. This is known as the “right of survivorship”.
Married couples or those in a civil partnership commonly use this method of co-ownership because the right of survivorship makes it straightforward to inherit each other’s shares in the property.
However, there may be reasons not to become joint tenants. For example, if one of you has made a larger contribution to the purchase price of the property and you would want this to be recognised if the property is sold or if you separate. A joint tenancy is also not suitable if you have a family from an earlier marriage and wish to leave your interest in the property to them, instead of passing it to the other co-owner.
Tenants in common
If you hold a property as tenants in common, each of you will own a specified share in the property. Your shares may be equal (in the absence of any statement to the contrary), but they do not have to be. Alternatively, you can specify what share of the property belongs to each owner e.g. 70:30 or 80:20 by way of a separate document setting out these interests.
Any share of a property can be passed on to another person, either by Transfer or under your Will. If there is no Will at the time of your death then your share will pass in accordance with the rules of intestacy.
If you choose to hold the property as tenants in common, then you should sign a declaration of trust. A declaration of trust is a document that formally records that you hold the property as tenants in common and sets out your respective shares in the property. If you sell the property, or if you separate, the declaration of trust will be referred to, to work out your entitlement to the sale proceeds from the property.
The Declaration of Trust may also include terms such as giving you first refusal to buy out the share of the party wishing to sell.
Holding the property as tenants in common may be appropriate if you have children from previous relationships and would prefer them to inherit your interest on your death rather than your co-owner. Holding the property as tenants in common in unequal shares may be desirable if you have made unequal contributions to the purchase price of the property.
Note that Land Registry allow up to four legal owners (Proprietors) to be registered on the title so if there are five or more, then a Deed of Trust must be drawn up to name the additional Beneficiaries.
How to determine how you hold a property
You can find out how the property is currently held by looking at the Land Registry Office Copy Entries. The Proprietorship Register will not state Tenants in Common or Joint Tenants but instead the wording of a Form A restriction in the title register as follows will indicate that the property is held as Tenants in Common:
If the wording is not present, then this would suggest the proprietors own the property as Joint Tenants.
How to change the ownership
Circumstances can change, and you may want to change how you hold your property. Land Registry will not charge a fee for removing a restriction but they charge £20 for entering a restriction onto the title.
If you decide to hold the property as joint tenants but then wish to split your interests, you can “sever” the joint tenancy and turn it into a tenancy in common at any time. Either party can sever the joint tenancy without the other’s agreement or the joint tenancy may be severed automatically in several situations, including where one party becomes bankrupt. This may also be required for example if your relationship breaks down. A Notice of Severance can be served by one owner on the other followed by an application to Land Registry to enter a restriction using their Form RX1.
Conversely, if you marry, you may wish to change from being tenants in common to joint tenants and an application made to Land Registry to withdraw or cancel the restriction using their Forms RX3 or RX4.
It is also possible following the death of one joint tenant to retrospectively sever the joint tenancy via a “Deed of Variation” to redirect the deceased joint owner’s share to someone other than the surviving joint tenant.
Make sure that you advise your Solicitor before completion as to how you wish to hold the property. Sherrards Solicitors will provide you with a “Joint Tenancy Form” to complete at the outset of the transaction. You should take proper legal advice on your options based on your personal financial situation. You should also ensure your Will is up to date. Sherrards Solicitors Private Client Department are able to provide advise accordingly.
Farewell Help to Buy
The Help to Buy scheme was introduced in 2013 to provide equity loans towards the cost of buying a new-build home, and helped over 500,000 first-time buyers buy a property. Although it has helped many, the Government has no plans to extend the scheme and time is running out for those in the middle of transactions and building.
Conveyancers, solicitors, estate agents and homebuilders dealing with Help to Buy matters need to add these dates to their calendars: 17th and 31st March 2023, and here’s why:
Friday 17th March 2023
Homebuilders must have finished building homes, using Help to Buy, on or before 17th March so that they are ready to be lived in. This is called Practical Completion, and it is when your home is built and has received a new-home warranty. After this date, the property will not be able to use Help to Buy.
Friday 31st March 2023
The Help to Buy scheme ends on this date. Home buyers need to have legally completed their purchase using the Help to Buy: Equity Loan by this date.
Funding for Help to Buy is unavailable after 31st March 2023 under any circumstances so purchasers that legally complete after this date will not qualify for a Help to Buy: Equity Loan.
If you are currently having a house built, or are in the middle of trying to complete your conveyancing, now is the time to check with your home builder, conveyancer and estate agent that these dates will be met so you still qualify for the scheme.
For more information regarding Help to Buy closing, please follow this link to go to The Government’s website.
Buying Real Estate in the UK
The first stage for an investor or owner occupier will be ascertaining the area to invest in and ultimately locating the property to purchase.
When viewing properties in the UK, you should be aware of the legal way in which you are able to hold a property. You will either obtain the freehold of the property, which includes the whole of the building and will allow you the freedom (subject to any landed estate retaining restrictions over the property and any local council requirements) to make alterations and improvements as you so wish.
The alternative way of holding a property by way of leasehold interest, either a new lease will be granted to you (usually on a new build property) or assigned over to you from the existing owner. The terms of leases are usually 99 years, 125 years or 999 years and the balance of the term will be transferred to you. This will mean that although you have a long-term interest in the property, you do have a landlord who owns the freehold building. You will be subject to service charges and ground rents, paid to the landlord and it is imperative that your advisor provides you with such details of not only current expenditure but planned future expenditure. These are additional charges that should be borne in mind, particularly when viewing an up market and exclusive development with shared facilities such as a gymnasium or swimming pool. You also need to investigate whether the building is properly managed.
If you are purchasing a leasehold property, when you view the property you need to look out for any improvement works required to the building as a whole, as you will be responsible via your service charges to contribute towards the cost of these items. If the internal elements of the property require internal upgrading, then depending on the terms of the lease, landlord’s consent may be required. In addition, the alteration works will require consent from the local council.
Tax advice should be obtained at the outset, to consider the most tax efficient purchasing vehicle due to the additional SDLT and ATED charges in place. Consideration of personal tax structures and whether the individual is to be based offshore will be required.
It is prudent to consider any requirements in respect of timings and when a seller will require you to commit to a contract and then legally complete. It is increasingly the norm for exchange to be required quickly and a non-refundable deposit payable to ensure exclusivity, with completion to take place soon thereafter. This may impact on financing arrangements and the speed of which funds can be transferred and lending facilities put in place.
What is clear is the greater the value of the asset, the greater the need for sound real estate and tax advice. Please do contact us so that we can assist you with your needs in the UK residential market.
To find out more, click here to speak to Residential Property Partner Caroline Vernon.
Top tips when buying property
Here are our top five tips to help you:
Whether or not finance is needed, speak to a broker early on in a transaction and preferably before your agent agrees the main elements of the purchase. Raising finance once exchange has taken place, makes for a fraught completion experience for both you and your lawyer.
2. Planning the completion date
If you are selling a property to raise money for your purchase, ensure that the completion date of the sale is on or before the completion of the purchase. This may sound obvious but it will avoid surcharged rates of SDLT being paid at 3% above the standard rates. These rates are paid even where your main residence is being replaced with the Revenue requiring you to claim a rebate once the additional main residence is sold.
You can also avoid the need to use your cash reserves for a deposit, as a deposit held on your sale can be used for your purchase where the property is in England and Wales.
3. Surveyor’s appointment
Appoint a surveyor. He or she will flag items that you may not necessarily have spotted on your brief viewing and may even give some bargaining power and leverage on the price.
4. Your lawyer
Make and keep a relationship with a lawyer and update them on your transaction. This is particularly important where you are marketing a property for sale, to ensure that deadlines, that you or your agent impose, can be met by buyers. A full sales pack with all title deeds, up-to-date searches, planning and building information can be pulled together in advance.
Plan for exchange well in advance. Weeks of delay can be avoided if all the fact finding has been completed in advance. Attended exchanges do still occur so be prepared.If there are any title difficulties, these can be addressed in advance.
5. Your accountant
Take tax advice. You may not be resident in the UK, you may own other properties worldwide or hold a portfolio of investment property. Early tax advice will be required to work out your CGT (Capital Gains Tax) liability on sale and IHT (Inheritance Tax) liability on death.
SDLT matters will be more complicated, where other property is held and often a detailed assessment is required to determine the SDLT rates payable by you. Where your company owns the title to the property, ATED (Annual Tax on Enveloped Dwellings) charges will be made annually and your accountant will need to claim any exemptions in your annual tax return.
You may have very specific requirements which must be conveyed to all parties. You may want to access the property you are buying between exchange and completion with architects and builders to obtain quotes or for interior designers to start planning works. The seller may even agree to you commencing limited works to help you move forward quickly with your plans.
Where you are buying a bolt hole which is a leasehold property, a landed estate owner may own the freehold, for example the Grosvenor or Portman Estate. Do not be surprised when you are asked for onerous references to obtain the landlord’s consent, in lieu of a rent or service charge deposit.
If you are buying a turn key, consider if there are any service charges for the shared estate roads and whether building warranties for any building works are available.
Where you are buying expensive items of furniture, artwork, electrical items, to be left at the property, a full inventory of those items with costings will need to be included. Such items do not attract SDLT but they must be justifiable in their costings.
Sherrards Residential Real Estate team complete £5.4m London purchase
The team advised on a statutory lease extension request, with retrospective licence for alterations as well as other leasehold complexities. They also dealt with a third-party lender’s solicitors which was all dealt with and exchanged in a narrow timeframe for our client.
Mr and Mrs K said “A Great Move. The residential team worked very effectively to unwind a difficult set of circumstances to complete a tricky house purchase”.
A stress free property sale
Have you lived in your home for a number of years and are now thinking of downsizing to a smaller or more manageable property? Although the process has not changed, it is always sensible to be one step ahead of a buyer’s lawyer, particularly if you’d like a quick and stress-free move.
Instructing a lawyer is the first port of call and it is always good to do so in advance of the property being marketed with an estate agent. This will allow time to iron out any issues and pre-empt all those questions that a prudent buyer’s lawyer will raise.
Potential issues that may arise include:
- If the land has not already been compulsory registered, then it may continue to be unregistered at the Land Registry. You will need to dig out your original title deeds for an application to be made. As most land is now registered, it may be worth asking your lawyer to register it at the Land Registry for ease of dealing with it moving forward.
- Where the property is registered, you should check with your lawyer for any entries on the title. If there are satisfied mortgages which have long since been redeemed, then you will need to contact the lender to ask them to notify the Land Registry or provide a form of discharge for your lawyer to send to the Land Registry on your behalf.
- Where you have carried out works to the property, you will need to produce various warranties and guarantees if they are still in date, along with building control completion certificates for new windows and planning permissions obtained at the time. Often duplicate information can be obtained from the council and duplicate FENSA certificates for new windows. However, you may want to draw your lawyer’s attention to these items so appropriate investigation can be made.
- Where the property is leasehold, you should pull together your ground rent and service charge payments, minutes of previous meetings with the management companies and contact details as to where the management pack can be obtained.
- Where there are rent charges demanded or where the property lies upon a freehold management estate, then enquiries will need to be raised and evidence of payments obtained in the form of receipts.
- There may be requirements for statutory declarations to be made as to use of the property or indeed parcels of land which are not in your ownership. It is sensible to draft these in advance or obtain indemnity insurance quotes for a prospective buyer.
Armed with the above, a full disclosure can be made to the buyer’s lawyer at the outset with no hidden difficulties arising at a later date to cause a buyer to withdraw. We are facing a particularly difficult market at present so anything you can do to improve your chances of a successful sale are well worth the effort.
To find out more, please contact Caroline Vernon.
Signing your life away…
Conveyancing Assistant at Sherrards, Gill Talbot, explains what being a witness to a legal document actually entails and examines typical examples of requests for signatures that you might come across.
It seems obvious and easy to sign legal documents correctly, but the number of errors we see here at Sherrards solicitors is surprising…..
The role of a witness is more onerous than you might think. A witness must be a neutral third party with no financial interest, must know the person whose signature they are witnessing and be satisfied as to their identity. The witness does not however have to be familiar with the terms of the document.
A witness must be 18 or over. Contrary to common belief, a spouse or co-habitee can in fact act as a witness, but it is best avoided as it could be argued that they are not neutral. It may sound obvious but it is important to keep your signature consistent.
An individual or a company can authorise a power of attorney to sign on their behalf, but the delegated power of attorney will still require a witness for their signature. In this instance, the witness is verifying the identity of the attorney.
An individual signature
The most common form of witnessing an individual’s signature is after observing the document being signed in their presence. The witness must then sign the document as proof and print their name, address and occupation. The name and address must be legible to allow the witness to be traced should any questions arise concerning the execution. The usual form is as follows:-
Signed as a deed by (full name of individual) in the presence of
Signature of witness:________________________
Name of witness (in BLOCK CAPITALS):___________________
Address of witness: _________________________
Occupation of witness:________________________
It is permissible for a witness to verify two signatures on a document but each signature should be separately witnessed.
Certain Lenders require the Mortgage Deed / Legal Charge to be witnessed by a Solicitor or Notary Public. Some Lenders may also require the Solicitor to provide a Certificate of Execution.
There is more to consider when verifying a signature on behalf of a company, such as the memorandum and articles of association or a person with significant control. Essentially it is usual for two directors to sign without the need for a witness.
Executed as a deed by (name of company) acting by [a director and its secretary] [two directors](Full name of individuals)
Signature of Director:____________________
Signature of [Secretary][Director]:________________
However, since April 2008 and the Companies Act 2006, one director can sign in the presence of a witness using the form below.
Executed as a deed by (name of Company) acting by a director (full name of Director) In the presence of:
Signature of Director:__________________
Signature of witness:________________
Name of witness (in BLOCK CAPITALS):________________
Address of witness:____________________
Occupation of witness: __________________
What requires a signature and what doesn’t?
It is important to remember that whilst plans do not require a witness, they do need to be initialled by each party. Likewise, contracts do not require a witness as these are not deeds.
Certain documents such as Wills require two witnesses. Other documents require each page to be initialled by each party as well as a signature at the end, for example, a power of attorney or assured shorthold tenancies (AST’s). This proves that all terms were read and approved to prevent future misunderstandings.
For international documents, there are government authorised license officials known as notaries who authorise the identity of each signatory. The authenticity of the signature is confirmed by an attached certificate known as an “apostille”. See https://www.notarypubliccentrallondon.co.uk/ for further information.
Electronic and digital signatures are becoming more widely accepted for example for AST’s. However, for leases, contracts and other legal deeds, there is no case law yet as to their validity so electronic signatures are not currently common place. Land registry have published some guidance.
Don’t forget, until such time as electronic signatures are valid for all legal documentation, originals of all signatures are required, and scanned documents will not be permitted.
To find out more, please contact Gill Talbot.