Severance of Tenancy
If you have purchased a property jointly with others, either as a married couple, partners or friends, you will have chosen one of two kinds of ownership, either as beneficial joint tenants, or tenants in common
1. The two kinds of ownership
When you purchased your property, your solicitor will have explained these two types of ownership and helped you choose the one that best suited your circumstances.
1.1 Beneficial joint tenancy
Owning your property as beneficial joint tenants means the property belongs to you and the other owners jointly which means you all need to act together as though you were the sole owner. In other words you do not own specific shares in the property and you cannot give away a share of the property in a Will. If you die, your interest in the property passes automatically to the other owner or owners.
A beneficial joint tenancy ends when either:
- the whole property is transferred to one owner
- the tenancy is converted into a tenancy in common, whether voluntarily or involuntarily, for example if one of the owners becomes bankrupt
- the property is sold to someone else, or
- one owner outlives all the others.
1.2 Tenancy in common
Owning property as tenants in common means the property belongs to you jointly with other parties but in this case you only own a specific share of its value. You can give away, sell or mortgage your share and if you die, your share of the property passes to the beneficiary in your Will. This type of ownership is reflected by an entry in the Land Registry for the property known as a Form A restriction.
The effect of this restriction is that if you are the last survivor of all the owners you must appoint another person to act with you in any deed of sale or mortgage and to jointly receive any sale price or mortgage advance.
A tenancy in common ends when either:
- you all sell the property (with all the shares) to someone else
- you all convert to a beneficial joint tenancy, or
- one owner acquires all the shares in the property.
A tenancy in common does not automatically end when all the original owners have died. It will continue unless one person has become the owner of all the shares or the property is sold. The law makes provision about who can become the registered owner or who can sell the property when this happens. Your solicitor will advise you.
2. Why would you Sever the tenancy?
Severance of a Joint Tenancy can happen automatically in certain circumstances. For instance, if one of the owners is declared bankrupt, or commits murder of another owner. Usually, though, there are three main reasons why a tenancy would be severed.
- A break down in the relationship of the parties, such as a divorce
- To prevent children from a former relationship being disinherited
- To protect against care home costs
Severance can occur by mutual agreement. However, it is possible for one owner to choose to sever the tenancy without seeking agreement, merely by serving a notice in writing to the other parties.
2.1 A Break Down In The Relationship Of The Parties
If the parties decide to split up, or separate or divorce in the case of married couples, it is unlikely that they would wish their other half to automatically take their “share” in the property if they were to die. In these circumstances it is usual to sever the joint tenancy and become tenants in common, until such time as the property is sold or transferred fully from one party to the other.
2.2 To Prevent Children From A Former Relationship Being Disinherited
It may be appropriate to sever a joint tenancy in the case of a couple where one party has children from a former relationship. That person may be concerned that if they died first their spouse would disinherit their children from a former relationship and the spouse remarried.
2.3 To Protect Against Care Home Costs
The time when an elderly person needs to go into residential care is often a huge strain on family members. Illness or infirmity may have forced a sudden change in circumstances and time may be short.
Anyone with assets of more than £23,250 will be assessed as being able to meet their care costs. In most cases, the value of any property owned will be included within this sum. However, there are certain circumstances where the home is excluded.
Those with the foresight to plan in advance may want to make sure they can take advantage of this, particularly if their remaining assets are less than £23,250. The house will automatically be ignored if a surviving spouse or partner lives there. This rules extends to other relatives aged 60 or over who live in the property. So if a daughter, niece or brother has moved in as a carer, this could help reduce future care costs.
More importantly, many couples don’t realise that they could take the home out of the care equation altogether by altering the way in which it is owned.
If a property is owned as joint tenants and the tenancy is then severed to “tenants-in-common” this gives both parties the freedom to leave their share of the home to whomever they like.
Under these circumstances where a property is owned as tenants-in-common the property is effectively out of the reach of local authorities, even after the death of the first partner.
If the husband has died and left his half share of the home directly to the children, or to a trust, then the value of his wife’s share of the property will be ignored if she goes into care at a later date. This is because her half of the home is decreed to be worthless, as it can’t be sold on the open market.
It is important to recognise that if a local authority considers that assets have been given away in order to avoid payment of care fees, they will treat that person as still possessing the asset when assessing their ability to contribute towards the cost of care. Hence it is critical to sever a joint tenancy and/or give away assets well in advance of the need for residential care.
City & Country are experienced in severing tenancies and would be pleased to handle the process as needed.
