Tenants in Common

To be tenants in common means you must be part of a tenancy in common agreement. A tenancy in common agreement is a situation in which 2 or more people hold interest in a property and each owner has the right to leave their share of the property to a beneficiary upon their death.

This doesn’t mean you own separate parts when you're tenants in common, but that you have separate interest in the whole property. You can even have different ownership interests - e.g. Jane may own 75% of a property and Jack may own 25%.

The fact that you own separate proportions of interest in a property makes tenants in common setups suitable for people who want to purchase a property with friends and family.

A tenancy in common allows multiple people to hold an undivided share of a property. Some of the key features of a tenancy in common include the following:

• Co-ownership - a tenancy in common involves 2 or more people who jointly own a property. Each person holds a distinct and separate share of the property
• Separate shares - each co-owner of the property has their own clearly defined share of the property. The shares can vary, depending on a prearranged agreement, or the financial contributions to the property
• Transferability - a co-owner has the right to transfer or sell their share of the property without getting consent from the other co-owners. This means that 1 person under a tenancy in common can sell their share to someone else without affecting the other co-owners' rights or ownership of the property
• Inheritance - if 1 of the co-owners dies, their share of the property can be passed on according to the chosen beneficiary in their will. Their share of the property doesn’t automatically pass to the surviving co-owners
• Liabilities - co-owners under a tenancy in common share responsibilities and costs associated with the property. This includes mortgage repayments, repairs and maintenance. However, the amount they must pay is in proportion to their share of ownership
• Legal protection - a tenancy in common is a legal form of property ownership. Co-owners have legal rights and protections regarding their share of the property and can enforce their rights if necessary

Both tenancies in common and joint tenancies are types of joint ownership. They serve a similar purpose, which is to allow people to co-own property. However, the way they’re set up and the rules they follow are slightly different.

How do you and your co-owners decide between becoming joint tenants or tenants in common? It ultimately depends on your situation and who you want to co-own your property with. Carefully consider which option is best for you, or you risk causing problems later.

What Are the Main Differences Between Joint Tenants and Tenants in Common?

• In a tenancy in common, when one of the owners passes away, they can pass their ownership interest onto a beneficiary in their will. You can’t do this with joint tenancy. The title of the property is automatically given to the other surviving owner, regardless of whether you have a will naming someone else. This is called Rights of Survivorship
• Tenants in common can have different percentages of ownership interest in a property, whereas joint tenants each own the whole value of a property - i.e. 100%. This can be particularly useful if one person is putting in a significantly larger deposit than the other
• Joint tenants are registered on the same deed at the same time - it’s one transaction where they act as one party, which is why the property immediately goes to the other owner if one of them dies. On the other hand, not all co-owners need to enter into a tenancy in common at the same time. You can obtain interest in a property years after the other co-owners originally set up the tenancy in common

Rules to Follow Whether You're Joint Tenants or Tenants in Common

• Both joint tenants and tenants in common need a joint mortgage to secure a jointly owned property – although tenants in common could technically qualify for separate mortgages, most lenders won't offer this option
• All co-owners of a property must agree to sell that property - if not all co-owners agree, one owner can file a partition action to try and force the sale of the property

For tenants in common agreements, the overall ownership between co-owners adds up to 100%. This is different from joint tenants, where each co-owner owns 100% of the whole property. The breakdown for tenants in common agreements can be any variation - e.g. Cristina could own 50%, Dan could own 25% and Alice could own 25% or they could each own a third at 33.33%.

If no ownership interest breakdown is specified, it’s assumed that all owners have equal shares in the property.

You can change from sole owners to tenants in common via a process called transferring ownership. You can also change from joint tenants to tenants in common.

The way a tenancy in common works isn’t for everyone. There are some disadvantages of tenants in common agreements that you should consider before making your choice.

The disadvantages of and potential problems with tenants in common agreements are:

• If a co-owner without a will dies, the property goes through probate. Probate can be time-consuming and expensive
• In the event that one tenant wants to sell the property, but the others don’t, the tenant can file a partition action. This can force the other co-tenants to sell the property

A deed of trust for tenants in common is a crucial legal document that establishes the rights and obligations of owners in a tenancy in common arrangement. It provides the details of the co-ownership arrangement, including the shares held by each owner, their responsibilities for the mortgage and maintenance costs and the terms and conditions. The deed of trust includes provisions relating to the distribution of proceeds should the owners sell the property and contributions towards mortgage payments and repairs. It also sets out the process of selling or transferring shares and the inheritance of an owner’s share of the property if they die. 

The deed can also cover what happens if one of the co-owners wants to sell their share or if an owner dies. Having these terms laid out in advance helps to prevent disputes and ensures that each party's expectations are clear from the start. It’s especially important when co-owners are not related or married, as it allows for greater flexibility in managing the property. 

A well-drafted deed of trust can also offer legal protection if circumstances change. For example, if one co-owner stops contributing to mortgage payments or maintenance costs, the deed can specify what actions can be taken to rectify the situation. In this sense, a deed of trust is not only a tool for outlining ownership shares but also for managing ongoing responsibilities and future decisions.

Tenants in common have certain rights regarding their ownership, for example:

• Ownership - each tenant in common has a separate share of the property, which they can sell or transfer to whomever they wish without the consent of the other owners
• Possession - tenants in common have the right to possess and use the property, as long as it doesn’t affect the rights of the other owners
• Inheritance - when a tenant in common dies, their share of the property can be passed on according to what they’ve outlined in their will or the laws of intestacy
• Management - each owner has the right to be involved in decisions concerning the property’s management, including maintenance, repairs and financial obligations in proportion to their specific share
• Legal protection - tenants in common have the legal right and protections to enforce their rights and ownership through legal channels if necessary

Ending a tenancy in common agreement can be more complex than terminating a joint tenancy, but there are several ways to bring the arrangement to a close: 

• Sale - the joint owners agree to sell the property and divide the proceeds based on their ownership shares and/or original deposit amount. This is the most straightforward method 
• Buyout - one of the owners can choose to buy out the other owner(s) by buying their shares of the property at an agreed price. This allows the remaining owners to continue owning the property without being forced to sell. The departing owner receives the agreed-upon value of their share, providing them with liquidity without disrupting the ownership structure 
• Severance - if the owners cannot come to an agreement, one of them can file for a partition action which could lead to a court order forcing the sale of the property.  This can be a lengthy and expensive process, and the court will distribute the proceeds based on each party’s ownership share 
• Converting to joint tenants - it’s worth noting that the tenancy in common arrangement can be terminated if all owners agree to convert it into joint tenancy. This would change the ownership structure and transfer the rights of survivorship, which could be useful in certain situations, such as estate planning or simplifying ownership 

However you decide to end your arrangement, it’s essential that you get legal advice to ensure you understand the specific legal requirements and procedures for ending a tenancy in common. 

It’s important that you consider the tax implications of tenants in common before entering into such an arrangement. These can include the following:

• Capital Gains Tax (CGT) - when a tenant in common sells their share, they may be liable for CGT on any gains they’ve made since acquiring the property. Each owner is responsible for their own CGT liability, which is based on their ownership share
• Inheritance Tax (IHT)- should one of the owners in common pass away, their share of the property may be subject to IHT. However, transfers between civil partners or spouses are usually exempt
• Income Tax on rental income - any rental income generated from a tenancy in common is taxed, based on each owner’s share

A tenants in common agreement allows you to be a joint owner with a little extra independence.  Do you want to know more about first-time buyer mortgage rates and other mortgage deals available? Then make an enquiry or call us on 0330 433 2927 and speak to one of our specialist mortgage brokers. We can tell you everything you need to know.