August 04 2014
Where a property is to be owned by more than one person or entity, you can use one of two main forms of ownership.
The first option, and the most common form of ownership, is known as a ‘joint tenancy’. When one of the owners of a joint tenancy dies, ownership passes to the survivor by right and is effected by registration. This form of ownership is mostly used by couples who, when they die, would leave their property to their partner or spouse.
The second option is to record ownership as ‘tenants in common’. Property can be owned as tenants in common in equal or unequal shares. The ownership shares can reflect the contributions each of the owners are making to the purchase of the property. For instance, one of you may have a 20% share and two others could have 40% each. With a tenants in common situation, ownership doesn’t automatically pass to the survivor when one of the owners dies. Ownership passes to the person entitled under the deceased owner’s Will. If the deceased owner doesn’t have a Will, ownership passes to those people entitled under the Administration Act 1969. Friends and people buyng as a business arrangement often prefer to buy as tenants in common.
Any type of property can be owned jointly or as tenants in common – not just for land. For example, bank accounts, company shares, or vehicles can be owned jointly or as tenants in common.
When taking ownership of property with someone else it’s important to carefully consider the implications of the type of ownership chosen and whether your Wills should be updated at the same time.
If you’re buying the property as an investment, we recommend that you obtain advice from an accountant in respect of the tax and accounting implications of the purchase and the appropriate entity to complete the purchase.
Forcing a sale and property sharing agreements
When you’re buying property as tenants in common (see above), it’s particularly important that you have a property sharing agreement that includes provisions on what to do if your property sharing relationship breaks down. Here we’ve put together a scenario about what could happen if there’s a difference of opinion between tenants in common.
Peter Walden and Humphrey Wallace own a commercial building together as tenants in common. They each own a one half share. Peter Walden wants to retire, sell his share of the property and go on a cruise around the Bahamas. However, Humphrey Wallace doesn’t want to sell his share as the property market is in a bit of a slump at the moment and doesn’t think they will get the best price for the property. Humphrey unfortunately doesn’t have the equity to buy Peter’s share. Can Peter force Humphrey to sell?
The short answer is yes, Peter can force a sale of the property he holds with Humphrey. Peter can apply to the court under s341(1) of the Property Law Act 2007. The court has the power to order the sale of the property as a whole, in part or require the co-owner to purchase the other co-owner’s share. However, the court must consider many factors when making its decision; it will not always order in favour of the co-owner wishing to sell. Applying to the court for relief can be a costly and often drawn out process.
Peter and Humphrey could have avoided the costly court process if they had had a property sharing agreement when they bought their property. A property sharing agreement deals specifically with various matters relating to the property, such as who pays outgoings (for example, rates, insurance and so on), what happens if one party wants to sell their share of the property, and how the property is to be valued should a share or the whole of the property be sold.
It’s essential that when you’re considering buying property with someone else that you get legal advice and give serious consideration to put in place a property sharing agreement. If Peter and Humphrey had done this, it could have saved them both a lot of stress and expense.
For further questions or advice contact the friendly team at Gifford Devine today.