Property ownership – severance of joint tenancy

When there are two or more people named as the owners of a property, they are the legal owners. However, what happens to their respective interests in the property concerned on their death depends on the type of co-ownership that existed.

There are two ways to co-own assets:

• As Joint tenants; and
• As Tenants in common

Joint tenants

This is by far the most common way that co-owned assets are held. Under a joint tenancy, each owner has an indivisible share in the property and all of the owners are equally entitled to the whole asset. This means that, on the death of an owner, their interest passes automatically to the surviving owner(s) under what is known as ‘the right of survivorship’. This takes precedence over anything stated in the deceased’s Will relating to the disposition of the asset.

This can make administering the asset as part of a deceased’s estate more straightforward as all that is required to happen is for the bank or the Land Registry to be notified of the owner’s death and for their name to be removed from the ownership of the asset.

If the last two joint tenants die at the same time making it impossible to determine which of them died first, the older of the two is deemed to have died before the younger owner.

Tenants in common

When an asset is held by the owners as tenants in common, they each have a distinct share in the asset and so can deal with their share separately to the other owners. With tenants in common, the deceased’s share can pass under the terms of their Will and therefore to persons that are not currently owners.

In relation to property, if co-owners wish to hold their property in such a way, they must indicate this expressly as the starting point is a presumption in favour of holding the property as joint tenants.

The main reasons for wanting to hold a property as tenants in common include:

• The co-owners contributing unequal shares to the property and therefore they can hold as tenants in common in the proportions to the contributions that they have made;
• The co-owners wanting to be able to leave their share in the property elsewhere other than to the surviving owner(s), or
• The co-owners wanting to include a trust in their Wills which could potentially utilise their share in the property if their interest in the property is available to pass in accordance with the terms of their Will.

Most co-ownerships start as joint tenancies but this does not prevent them from being converted to tenancies in common.  In order to change the ownership from a joint tenancy, the tenancy must be severed. This normally requires the preparation of a document known as a ‘Notice of Severance’. This can be carried out with the consent of all of the co-owners, or unilaterally by one co-owner.

Once the property title has been ‘severed’, it is assumed that each owner has an equal share in the property. If this is not the case then the co-owners’ shares can be stated either in the conveyance itself or in a separate agreement prepared by the co-owners, often referred to as a declaration of trust. A declaration of trust is often preferred if the arrangements between the co-owners are particularly complex or if they would like to keep the details of the arrangement confidential.

A situation which often requires the property title to be severed is where the co-owners are married but are going through a divorce. Although the ownership of the property is likely to be addressed as part of the matrimonial proceedings, as the proceedings can take a prolonged period of time it is often sensible for the property title to be reviewed and, if not already, severed so that, should one of the couple die before the divorce is finalised, the property does not automatically pass to the survivor, which is likely to be contrary to the intentions of both parties given the proceedings that they are going through. Every person’s situation is however, slightly different, so you should take advice from a Family solicitor before making any final decisions.

For anyone who is going through a divorce, it is sensible to review the arrangements that you have in place, including your Will, if one is already in place, and any Lasting Powers of Attorney which may appoint your soon to be former spouse. If there is no Will in place then it would be sensible to have something prepared which is flexible to ensure that your property and wider assets do not just pass under the intestacy rules.  Intestacy rules are set out by law to say who receives from your estate in the absence of a Will and whilst you are still married these apply in such a way that your spouse is the person entitled to the bulk of your estate.

No two situations are the same so getting specific legal advice on your specific position is important to ensure that your assets are correctly and your beneficiaries are provided for correctly.

For more information about the most appropriate way to own your property and your personal affairs, particularly if your personal situation is changing, contact Tom Bird (tom.bird@bpe.co.uk 01242 248487) or another member of the Private Wealth team.

These notes have been prepared for the purpose of articles only. They should not be regarded as a substitute for taking legal advice.