There are two ways of owning property and land in the UK for co-owners. Both use words that are commonly connected with landlords and tenants but that is misleading as it suggests such a relationship when none exists.
The two ways are:
- Tenants in Common (TIC)
Forgetting the landlord and tenant issue, one way of owning land is by way of TIC. This means that each party will own a distinct share in the land or property.
If two people own land in this way then they may define it in shares, e.g. 50 / 50 or 70 / 30. The main issue to bear in mind is that on the death of one of the co-owners the deceased share will not pass to the surviving co-owner. Instead it will form part of their estate and pass under the terms of their will or intestacy.
For that reason it is important for decisions to be made at the outset of ownership as to how the land will be held, in what share and what will happen on the death of one of the co-owners. If the deceased wants the co-owner to have their share then they must provide for this in their will or hold the land differently (see below). If not then the surviving co-owner may face a claim for possession from those who inherit.
- Joint Tenants (JT)
The other way in which to hold land is as Joint Tenants. Again there is no landlord and tenant connection. JTs hold the land in undivided shares. This means that on the death of one of the co-owners, the surviving co-owner will receive the deceased’s share in its entirety.
The effect is commonly known as the operation of the rule of survivorship. It also means that the deceases interest will pass irrespective of any provisions that are set out in the deceases will or intestacy. The value of their interest therefore does not fall into their estate.
Co-ownership in marriage
JT is often used by those in a marriage, believing that the land will transfer to the co-owner come what may. Whilst this is true in most cases, there are certain occasions that may arise after death when the court can ‘undo’ this concept.
One of these occasions is when a co-owner dies and their estate is insufficient to meet a potential claim by a dependant. For example, if a husband holds his property jointly with his wife it will be assumed by them both (correctly) that on his death his share will pass to her without further ado.
However, if the wife in question was his second wife (W2) and he was still maintaining a first wife (W1) prior to his death, W1 may have the right to ask the court to order that her former husband’s share in the property is divided from W2 and placed back in the estate, thereby giving the estate an asset of value or an enhanced value which it may not have had previously. In the event that the husband made no provision for W1 in his will, she has the right to claim for lack of financial provision and this asset will come into the equation when deciding the level of her share.
The frequency of this issue arising is rare but not impossible. The value of the deceased’s share is likely to be taken at the date of the court hearing and not death meaning that the increase in property prices will affect matters.
What if debts are involved?
Alternatively, if there were debts due when the co-owner died which are not disputed, a creditor can seek repayment of those debts. Whilst institutional creditors will often waive recovery of such debts there is no obligation for them to do so.
It is possible for a creditor in this situation to seek an Insolvency Administration Order which is the equivalent of a Bankruptcy Order where the debtor has already died. If an Insolvency Administration Order is granted, any trustee in bankruptcy appointed to administer the estate can apply pursuant to section 421 of the Insolvency Act 1986 for the wife to repay to the estate the value of any interest transferred.
It is important to ensure when co-owning land that you have the right agreements in place whether that be TIC or JT and that you aware of the two examples set out above.