When buying property with others in the UK, a tenancy in common agreement is a popular choice, offering flexibility in ownership shares. However, while this arrangement suits many, it comes with potential downsides that buyers should carefully consider.
In this article, we will explore the disadvantages of tenancy in common in the UK, helping you make an informed decision before committing to this type of property ownership.
1. Lack of Survivorship Rights
One of the main disadvantages of tenancy in common is that there are no automatic rights of survivorship. Unlike joint tenancy, where the deceased owner’s share automatically goes to the remaining co-owner(s), a tenant in common’s share becomes part of their estate when they pass away. This means that:
Beneficiaries named in a will (or next of kin under intestacy laws) inherit the share.
The surviving co-owners may end up owning property with a third party they didn’t choose.
-Probate can slow down the transfer of ownership, which can create issues for the other owners involved.
For those who want their co-owner to inherit their share automatically, tenancy in common may not be the best choice.
2. Potential for Ownership Disputes
Since tenants in common can own unequal shares, disagreements over contributions and responsibilities are common. Issues can arise if:
- One owner contributes more financially but doesn’t receive proportionate benefits.
- Co-owners disagree on selling, refinancing, or maintaining the property.
- One party wants to exit the arrangement, but the others don’t.
Without a clear legal agreement in place (such as a Deed of Trust), disputes can lead to costly legal battles.
3. Difficulty Selling or Exiting the Agreement
If one co-owner wants to sell their share, they may face difficulties finding a buyer willing to purchase part-ownership of a property. Other challenges include:
- The remaining owners may block or delay a sale if they don’t agree.
- If an agreement isn’t reached, the exiting owner might need to go to court to force a sale.
- There’s no assurance that the property will sell at a good price.
This inflexibility can pose a serious drawback, particularly for individuals seeking rapid access to their investment.
4. Financial Risks and Liabilities
Each owner is responsible for their own share of mortgage payments and property expenses, which can create financial complications. If one party:
- Fails to contribute to mortgage repayments, the lender can still take legal action against all owners.
- Defaults on their debts, their creditors could place a charging order on their share, potentially forcing a sale.
- Falls into financial difficulty, it could impact the other owners’ investment in the property.
Co-owners should ensure they fully trust their partners before entering into a tenancy in common.
5. Inheritance Tax Implications
When a tenant in common passes away, their share is treated as part of their estate for inheritance tax (IHT) purposes. If the total estate exceeds the IHT threshold (£325,000 for individuals, £500,000 if a main residence is passed to direct descendants), their heirs may face:
- Significant tax liabilities before gaining full ownership.
- Potentially needing to sell the share to cover tax bills.
- Delays in inheritance due to probate proceedings.
For estate planning, joint tenancy or other structures might offer better solutions.
Is Tenancy in Common Right for You?
Despite these disadvantages, tenancy in common remains a useful option for those who want:
- Control over ownership proportions
- To leave their share to specific beneficiaries
- A structured investment arrangement
However, it’s crucial to mitigate the risks by:
- Creating a Deed of Trust to outline ownership shares and responsibilities.
- Having a clear exit strategy in case one owner wants to sell.
- Seeking legal advice to fully understand the implications.
FAQs
What happens if one tenant in common wants to sell but the others don’t?
If one co-owner wants to sell but the others refuse, they may need to negotiate a buyout. If no agreement is reached, the selling owner can apply to the court for an order for sale, which could force the sale of the whole property. However, legal proceedings can be costly and time-consuming.
Can one owner rent out their share of a tenancy in common property?
Yes, in theory, a tenant in common can rent out their share. However, in practice, this is difficult unless the property can be physically divided. If the other owners object, disputes may arise, and legal intervention may be required to determine rights and responsibilities.
Does tenancy in common affect inheritance tax?
Yes, when a tenant in common dies, their share of the property is counted as part of their estate. If the total estate exceeds the Inheritance Tax (IHT) threshold (£325,000), tax at 40% may be payable. This can be a financial burden on heirs, particularly if they cannot afford to keep the property.
Can a tenant in common be forced to sell their share?
A co-owner cannot be forced to sell their share unless a court orders it. However, if they fall into financial difficulty, creditors or legal authorities may take action to seize and sell their portion to recover debts. This could result in an unknown third party owning part of the property.
Is it easy to remortgage a property owned as tenants in common?
No, remortgaging a tenancy in common property can be complicated. All owners must agree to the new mortgage terms, and lenders may be hesitant due to the risk of disputes between co-owners. If one owner refuses, remortgaging may not be possible without legal intervention.
What legal documents can help protect tenants in common?
A Declaration of Trust is highly recommended. This document outlines:
- Each co-owner’s financial contribution
- Responsibilities for ongoing costs
- What happens if someone wants to sell or dies
A will is also essential to avoid inheritance disputes and ensure your share is passed to the intended beneficiary.
How does tenancy in common compare to joint tenancy?
Yes, a written Assured Shorthold Tenancy (AST) agreement is essential. It should outline:
- Rent amount and due date
- Deposit details and scheme information
- Maintenance responsibilities
- Termination notice periods
Providing a How to Rent guide is also a legal requirement in England.
How does tenancy in common compare to joint tenancy?
The key differences are:
- Tenancy in common: Shares can be unequal, there is no automatic right of survivorship, and each owner can pass their share through a will.
- Joint tenancy: Ownership is equal, and if one owner dies, their share automatically goes to the surviving owner(s), regardless of their will.
Tenancy in common offers flexibility but also creates more potential for disputes and complications, particularly in inheritance and selling situations.
Can a tenancy in common agreement be changed to a joint tenancy?
Yes, this is possible through a process called severance of tenancy, but all co-owners must agree. If they don’t, legal action may be required, and some financial or tax implications may arise.
What happens if a tenant in common doesn’t pay their share of mortgage or bills?
If one owner stops contributing, the others must cover the shortfall, as mortgage lenders hold all owners jointly responsible. This can lead to financial strain and even repossession if payments are missed.
Is tenancy in common suitable for investment properties?
It depends. Investors sometimes choose this structure to allow multiple people to contribute different amounts. However, disputes over rental income, property management, and selling decisions can make it a risky option without a clear legal agreement in place.
How can disputes between tenants in common be resolved?
Disputes can arise over property management, financial contributions, or decisions to sell. It’s prudent to have a well-drafted agreement in place outlining each owner’s rights and responsibilities. In the absence of such an agreement, mediation or legal action may be necessary to resolve conflicts.
Is a tenancy in common suitable for unmarried couples?
Tenancy in common can be suitable for unmarried couples, especially if they wish to own unequal shares or have specific inheritance plans. However, it’s essential to have clear agreements and wills in place to ensure each partner’s intentions are honoured, as the right of survivorship does not apply in this arrangement.
Can a tenancy in common arrangement be changed to a joint tenancy?
Yes, co-owners can convert a tenancy in common to a joint tenancy, provided all parties agree. This process involves legally altering the property’s title deeds and may require professional legal assistance to ensure it’s done correctly.
What legal protections are available for tenants in common?
Having a Declaration of Trust is a good idea. It clearly specifies each owner’s share, their responsibilities, and how to handle disputes or the sale of shares. It’s also important for all co-owners to have current wills. This can help avoid issues when an owner passes away.
How does tenancy in common affect mortgage arrangements?
All co-owners are typically jointly responsible for the mortgage. If one owner fails to meet their obligations, the others must cover the payments to avoid default. Lenders may also have specific requirements or restrictions for properties owned under a tenancy in common arrangement.
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