Claiming compensation for wrong advice on joint ownership

Joint tenants or tenants in common — What is the difference? And what can you do if you have lost out because of bad legal advice?

In this article, solicitor Emma Slade looks at whether people buying property together should do so as joint tenants or tenants in common, and claiming compensation for wrong advice on joint ownership.

On average, 23% of house sales are because of a divorce or the end of a relationship, and 11% need the proceeds to be able to re-home themselves.
When those properties were originally purchased, the couples were asked if they wanted to hold the property as “joint tenants” or “tenants in common”.
Many of those couples were given incomplete information about the difference, causing them a financial loss.

Joint tenants v tenants in common

Let us start from the beginning: what is a joint tenancy? What are tenants in common?

With names like that, it sounds like the parties are entering into a tenancy agreement, which can be confusing. In reality, the two types describe the different ways that the parties can own the property. The legal title (which will appear on documents held by the Land Registry) will show the home owners as both parties, but that does not mean that the parties own the property equally unless they have elected to do so. Hence, deciding how the parties will actually hold the property.

Conveyancers give guidance to their clients on the difference between joint tenants and tenants in common, and this is usually given in the context of what would happen if one of them were to die.

If the property is held as joint tenants, then its owned equally. On the death of one party, the property automatically passes to the surviving person. However, if it is held as tenants in common then the property is owned in agreed shares (eg. 50-50 or 70-30). On death, the deceased’s interest in the property will pass in accordance with the terms of their will (or the intestacy laws).

That is usually the extent of the advice that many conveyancers and property lawyers give and it is woefully incomplete because it concentrates purely on the consequences of death and not if the parties split up.

How the law works when joint owners split up

At the beginning of a relationship, parties do not expect that the relationship will fail and are more concerned about ensuring their loved one is provided for in the event of an unexpected death — especially if there are children involved. Added to that, there is the advantage that if the property is held as joint tenants, not only does it automatically go to the survivor, the deceased will not have to pay any Inheritance Tax on the property.

It seems like a win-win.

But as the statistics above show, a significant proportion of relationships fail and that is where the incomplete legal explanation can cause problems. Because if the property is held as joint tenants, it is automatically assumed that when the property is sold, the net proceeds of sale will be divided equally. That may work where there have been equal contributions to the house purchase, and even the mortgage, but if one party has put in a larger proportion of the deposit, that will not be reflected in the subsequent division if there is a sale. In other words, one party loses out; the other gains at their expense.

Protecting your position

When jointly purchasing property serious consideration should be given to how the property will be held, especially if one party makes a larger contribution towards the house. It should not be automatically assumed that, in the event of the house being sold, there will be agreement as to how much money each party gets—particularly in situations where the parties are not married, so do not have access to the financial provisions the divorce courts allow. It may be better to hold the property as tenants in common in agreed percentage shares and make a will to ensure the property is transferred to the other on death. There may also be Inheritance Tax issues (in which case, do take professional legal advice) but it might be better in the long run.