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The potential pitfalls of property co-ownership

While prospective homeowners struggle with complex paperwork during a purchase, details about the nature of the ownership between unmarried couples are often overlooked, with potentially disastrous consequences, writes Edward Burton

In the flurry of paperwork that inevitably arises from a property purchase, there is an enormous amount for the prospective purchaser to read, understand and digest. Whether concern about the existence of a restrictive covenant, presence of a high pressure water main under the garden or cracks revealed by the survey, all can cause sleepless nights and on occasion make even the most sanguine consider whether a long rental may be a better way forward.

In reality of course, the well advised purchasers can almost always find a way through these issues and end up confident that the property they have purchased to be their dream home is fit for purpose.

A sometimes overlooked part of the purchasing process is equally vital. However, it does not relate to the condition of the house, searches or fittings and contents. Rather, it concerns how the property is held as between the purchasers of the property.  A recent case has served as a useful reminder about the essential importance of obtaining proper advice as to co-ownership options, particularly where the couple purchasing the property is unmarried.

The Privy Council in London determined that the ‘equal sharing principle’ applied to all of the assets (including artwork, a boat and a car) of a couple in dispute and not just to the family home. I will explain....

One way in which a property can be held is as joint tenants. The means that both parties on the title of a property will together own all of that property. If parties elect to hold a property in this way, this means that they will hold the property jointly and must both agree and join in on any future sale of the property. On death, the surviving co-owner would become entitled to the whole of the property in their own right (this is sometimes known as the right of survivorship).

The second way that a property can be held is as tenants in common. This means that each party agrees upfront the relative proportion that they hold in a property (eg 60 per cent to one co-owner and 40 per cent to the other co-owner or more complex arrangements which can change over time) which can be transferred or left by will. The right of survivorship does not apply to property held in this way.   In these circumstances, your share of the property can be passed on to another person, either during your lifetime or under your will.

A joint tenancy can be terminated or ‘severed’ and converted into a tenancy in common.

A vexed question that the courts have had to address related to couples who did not set out how their home was to be held as between themselves. However, where there is no documentation the only recourse that the parties have is to the courts to determine the shares that they hold in a property. The starting point of the court will be that, in the absence of evidence to the contrary, each party holds an equal share in the legal and beneficial title of the property. This presumption can then be altered by producing evidence that the common intention of the parties (as evidenced by their conduct) was that the proportions to which each party should be entitled are different.

It is of course always possible that the determination of the court may not accord with one of the parties’ expectations and therefore it is vital to ensure that how a property is held is recorded at the outset. These arrangements should be reviewed to ensure that they are up to date so that in the event of a dispute there is clear evidence as to the parties’ intentions.

The recent case in the Bahamas extended this principle to assess the division of assets other than the family home. The Privy Council in London then determined that the equal sharing principle applied to all of the assets (including artwork, a boat and a car) of a couple in dispute and not just to the family home.

While the division of a couple’s assets in certain cases is well established in respect of the family home, this recent case indicates the extent to which documenting clearly at the outset and on an ongoing basis who owns what can save expensive litigation when relationships end.

Edward Burton specialises in prime and super-prime residential property and works at boutique private wealth law firm Maurice Turnor Gardner LLP