Property ownership in England & Wales is more nuanced than simply whose name is on the deeds. To really understand property ownership, we need to break down the differences between legal ownership and beneficial ownership. In many cases the legal and beneficial ownership of a property will be the same, but it is also possible to be a beneficial owner but not a legal owner and vice versa.
On top of that, when property is owned jointly, the distinction between joint tenants and tenants in common can significantly affect how a property owner can deal with their property interests in their will.
Legal Ownership
Most property in England & Wales is registered with the HM Land Registry (HMLR) then it’s important to note that HMLR only register legal interests. Legal ownership (or “the legal estate”) refers to the person or people whose names appear on the property title deeds referred to as ‘proprietors’. These individuals are recognised in law as the official owners of the property. As such, they have the authority to deal with it and for example they can sell, transfer, or mortgage the property.
There can be up to four legal owners named on a title. Legal ownership cannot be divided into shares, so if there are joint owners they all have an equal legal interest in the property. If a joint owner should die, their legal ownership passes automatically to the surviving owners. Legal ownership doesn’t necessarily tell the whole story though.
Beneficial Ownership
Sometimes referred to as ‘equitable interests’, beneficial ownership refers to who is entitled to the economic benefits of the property. This includes the right to receive rental income, to occupy the property, and to receive the sale proceeds if the property is sold.
Unlike the legal estate, beneficial ownership can be divided up into shares between joint owners. These shares can be equal or unequal depending on the agreement that the owners have between themselves. For example, Celia and David may both be named on the title as legal owners and so both be equally entitled to make decisions about the property but may also have made a separate agreement that Celia’s beneficial interest is 30% and David’s is 70% based on David contributing more to the purchase. This separate agreement should be evidenced so that each of their beneficial interests are straightforward to enforce in future as the shares won’t be recorded on the title by HMLR. Their shares may be stated on the TR1 when purchasing the property or recorded in a Deed of Trust. A Deed of Trust is often preferred as this can go into much more detail about each parties interest, obligations such as mortgage contributions, and specific issues in relation to what happens if the property is sold, or on death or divorce.
If a joint owner dies their beneficial interest may pass by survivorship to the remaining owners, or it may be capable of being gifted by their Will to their heirs or to a trust.
Joint Tenants vs Tenants in Common
Joint owners hold the legal estate on trust. This means that they, as legal owners, hold the equitable interest on trust. If the legal and beneficial owners are the same people, then they are holding the property on trust for themselves. When a property is held jointly by two or more people on trust for themselves their beneficial interest can be held as either ‘joint tenants’ or ‘tenants in common’ This only applies to beneficial interests. The legal estate is only capable of being held as joint tenants.
Joint tenants
If the beneficial interest is held as joint tenants this means that neither owner has a severed interest in the property that they can gift or otherwise dispose of. They have an equal and undivided share. On death their beneficial interest will pass automatically to the surviving joint owner(s); it is not capable of passing by will. If there is only one surviving owner then they will become the sole owner of the property, ending the trust. This is called the ‘doctrine of survivorship’, so if you hear of property interests passing by survivorship this is what is meant.
Tenants in common
If the beneficial interest is held as tenants in common the doctrine of survivorship does not apply. This means that a tenant in common is free to gift their share, and on death their beneficial interest can pass to the beneficiaries of their will or will pass according to their intestacy if they have no will. Since tenants in common hold separate shares in the property they can have unequal interests, as in the example of Celia and David previously.
If joint tenants wish to change to tenants common, which is often an early step in estate planning, they can sever their joint tenancy in equity. Usually this is done by all joint owners serving a ‘notice of severance’ and then completing a SEV form for HMLR to register a Form A restriction on the title. This restriction ensures that the property cannot be sold or transferred by a single owner acting alone, helping to protect each person’s individual share.
To understand more about how you own your property and what this means for your estate planning contact an SWW Member via our ‘Find a Member’ page.
