How do I protect my equity in a property?
- AuthorJoe Pegler
For many people, buying a property is an exciting event. When purchasing with somebody else, there is always a lot to consider and it is particularly important that you are clear about the extent of your respective shares in the property, from the outset.
There are two ways that joint owners can own property:
'Joint tenants' - If property is owned as 'joint tenants', none of the owners have an individual share in the property. Instead, each person owns the whole of the property. When one of the owners dies, their interest automatically passes to the other owner(s). This is a popular choice for couples who want their partner to receive everything on their death.
'Tenants in common' - When property is owned as 'tenants in common', it allows each owner to have a defined share in the property. The property can be owned in equal or unequal shares, which can be useful where owners intend to make unequal contributions towards things such as the deposit, mortgage repayments or property improvements, possibly following the receipt of an inheritance. Furthermore, it allows owners to leave their share in the property to a third party in their Will, e.g. to children from a previous relationship.
Where property is owned as 'tenants in common in unequal shares', it is important that the exact terms of the ownership are set out in a 'Declaration of Trust'. This document will set out how the equity in the property will be divided once it is sold, and clearly identifies the shares belonging to each owner.
Declarations of Trust can be useful in a variety of other cases, for example, if you wish to give a third party (a non-owner) a share in the property. They can also be updated, to alter the shares, at a later date.