There are many aspects to consider when co-owners buy a property, whether as spouses, friends or business partners. From a legal standpoint, one of the key elements to consider is how the property will be held as properties can be owned both “legally” and “beneficially” meaning that, while the legal title to a property may be held by one person, the benefit of that property may be held for another.
In the case of co-ownership, although the legal title may be held as “joint tenants” in accordance with section 1(6) Law of Property Act 1925, the beneficial estate may be held either as “joint tenants” or as “tenants in common”.
What is a Joint Tenancy?
At its simplest that means that co-owners own the “whole” of a property together, rather than owning separate, distinct shares.
Joint tenants therefore hold an indivisible share in a property which cannot be apportioned between them.
On the death of one co-owner, their share automatically passes to the survivor(s) under the doctrine of ‘survivorship’, rather than passing under a will or on intestacy. As such, a joint tenancy is generally seen in cases where properties are owned by spouses and civil partners.
In fact, in these types of relationships, without an explicit declaration as to how the beneficial interest should be held, the legal presumption (which can be overturned) is that the property is held beneficially on a joint tenancy. This assumption was confirmed in the case of Stack v Dowden  UKHL 17 and later in the case of Jones v Kernott  UKSC 53.
What are tenants in common?
Holding a property as tenants in common means that each co-owner has a distinct share in the property. It is more typical to hold a property as tenants in common in the context of a business relationship or where one co-owner has contributed significantly more to the purchase price of a property than the other(s). The principle of survivorship does not apply to tenancies in common and, therefore, co-owners may leave their interest in a property by will.
Tenants in common can therefore benefit from greater flexibility and it’s not surprising for some joint tenants to wish to convert their interest into a tenancy in common. This process is called a ‘severance’ of the joint tenancy. Some reasons for severing a joint tenancy may include:
- divorce or breakdown of a relationship;
- tax and estate planning; and
- to protect an interest from creditors.