Changing to Tenants in Common – hidden dangers
Want to change your property to tenants in common?
You might have heard that changing to tenants in common if you own your property jointly is a good idea. For many joint owners, it is worth considering. It allows you more choice about who can inherit your property and it can help in family wealth protection.
But before changing to tenants in common it’s wise to check you know exactly what’s involved – otherwise, you could be treading on a legal landmine.
Read on to find out what dangers could lie beneath the surface…
What’s involved in changing to tenants in common?
It’s important to recognise that changing to tenants in common involves several steps.
The first step is the easy part – a notice is signed by one or both of the parties declaring that the joint tenancy in equity is at an end and from that point the parties share the ownership of the property as joint tenants in common. This is called a notice of severance.
If only one of the parties wants to change the joint tenancy they must serve the notice of severance on the other owner. If both owners are in agreement they both sign the notice.
The next step in changing to tenants in common is to notify the Land Registry. They will automatically enter a ‘restriction’ called a Form A restriction on to the register of title of the property.
The restriction acts to inform any third party inspecting the register that there are separate interests in the property and requires any purchaser to get a receipt for the purchase money from at least two persons.
A Form A restriction is entered on the register of title to protect anyone purchasing the property.
Could there be hidden dangers in a Form A restriction?
Usually a Form A restriction on the register of title of a property doesn’t create a problem from the point of view of the joint owners. It shows they own the property as tenants in common. However, there are some situations in which a Form A restriction could create a danger.
Death of a co-owner
These situations can arise if there’s trouble in a family and one of the joint tenants in common dies.
If the surviving joint tenant wants to sell the property, he or she must have someone else to join with them to sign the conveyancing documents because that’s what the Form A restriction requires. This is because there are separate , individual shares in the property. Normally the personal representative (executor) of the deceased co-owner will join in and sign the sale documents with the surviving co-owner.
But if the surviving co-owner doesn’t get along with the deceased joint owner’s family potentially there could be a problem. All that the Form A restriction requires is that there are two ‘trustees’ of the title of the property to sign the sale documents. Once the Land Registry is satisfied that the conditions of the Form A restriction have been met it will remove the restriction and the registration of the property title in the buyer’s name can be completed.
“The Form A restriction protects the buyer first and foremost”
So long as the surviving owner appoints a second person using the correct method and documentation, who that second person is doesn’t matter as far as the Land Registry and the buyer are concerned.
When the sale proceeds for the property are handed over they will be paid to the two persons named on the Deed of Transfer. Neither the buyer nor the Land Registry has any obligation to check whether that second person has a right to the money or not.
James and Karen severed the joint tenancy of their property to hold it as joint tenants in common. A Form A restriction was entered on the register of title.
Their relationship deteriorates and they separate.
Karen then dies leaving a Will in which she gifts everything she owns (including her share of the property) to her children from her first marriage.
James negotiates a sale of the property and without telling Karen’s children appoints a friend to be the second person or ‘trustee’ who can sign the sale documents.
The property is sold and the sale proceeds paid to James and his friend. Karen’s children are cut out of the sale transaction by this process and the only thing they can do is try and pursue James and his friend for their mother’s share of the sale proceeds.
Is there a way to avoid the Form A restriction?
There are other types of restriction that can be entered on the property register rather than entering a Form A restriction. Again, this needs careful consideration and it’s best to take legal advice before choosing an alternative form of restriction.
What should you do if you’re changing to tenants in common?
Your property is probably your most valuable asset, so treat it like that.
Take proper legal advice on the options available before changing to tenants in common. Make sure you understand exactly all the implications before changing the way in which you own your property.
Have you experienced any unforeseen consequences as a result of changing to tenants in common? There are many different kinds of property problems that can result from owning property jointly. Find out more about property ownership problems here
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About the author: Rosamund Evans is a solicitor and registered trust and estate practitioner in Nottingham UK. Read more about Rosamund here
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Gov.UK information about tenants in common