It is not unusual for property to be co-owned by family members within a farming family, regardless of whether or not those members are actively involved in the farming business. Often farms have outbuildings which are no longer needed so, particularly with the introduction of permitted development rights to allow the conversion of agricultural buildings for residential use. It makes perfect economic sense for family members to own residential property jointly, either for their own use or to rent out to others. Co-owning property has become generally more popular as house prices have risen steadily over the last ten years but anyone considering entering such arrangements, including family members, needs to do so with an understanding of the issues that may arise.
One party wants out of the arrangement
Inevitably, the most common issue we see is that one co-owner no longer wants to continue with the arrangement. This happens for a variety of reasons: a new relationship; the need to relocate; or they may have simply fallen out with each other which, as we know, can happen in the best of families. So if you have purchased a property with a sibling, for instance, and now want to sell – what can you do?
Hopefully, if one of you wants to sell, the other will be in full agreement, particularly if you agreed when you bought the property what would happen if this circumstance arose. Unfortunately, it tends to be the case that only one of the owners wants to sell, and with no agreement to fall back on, the relationship between the parties can become very strained.
Can one co-owner force the other to sell?
In most circumstances, the answer is yes. You can apply to the Court for an Order for Sale (brought under the Trusts of Land and Appointment of Trustees Act 1996 (TOLATA)). Such orders, which declare the extent of the parties’ individual ownership of the property, are commonly obtained if the relationship between the co-owners has broken down and one party wishes to release their “equity” by selling their property.
What happens if one person has invested more than the other?
You can co-own property either as ‘joint tenants’ or as ‘tenants in common’. If you own property as ‘joint tenants’, you hold the property together as one single owner on trust for each other. This means that if one of you dies, the other retains ownership of the whole property. Thus each of you would have a claim for 50% of the ownership of the property.
If you own the property as ‘tenants in common’, you own it jointly in specific shares usually set out in the purchase contract (commonly referred to as “the Transfer”). Therefore each of you will have a claim to a specific share of the property according to the percentage you agreed.
The Court’s presumption will always be that each co-owner is entitled to 50% of the ownership of the property unless it can be persuaded otherwise. If the parties have bought the property as “tenants in common” in unequal shares (for example, the Transfer specifies that the property is held in a split of 70:30), the Court will consider this sufficient evidence to persuade them to depart from the assumption that the property is owned equally and order that the proceeds, following sale of the property, be distributed in unequal shares. An examination of the facts and documents surrounding the purchase of the property will be required before one owner can consider issuing a claim for an order for the sale of the property in unequal shares.
How to smooth the path of co-ownership
Before you buy a house with another family member, you should try and be as realistic as possible about what might happen if one of you wants to sell. Of course, we all know that life can take unexpected turns and one of you may have to sell much earlier than you might have anticipated when you originally agreed to buy. Generally speaking, we would typically advise co-owners to own their house as ‘tenants in common’ not least as it means greater flexibility in estate planning – as a tenant in common, you can leave your share of the property to whomsoever you wish in your will. Nonetheless, an honest and open conversation at the outset exploring various scenarios will help to soften the blow if one of you decides to sell early and, hopefully, keep your relationship on an even keel. By incorporating your conclusions in a final agreement before you buy, you can help to make the process of selling much less stressful.