Blog by Christian Butler, Associate
For the second time in recent months I was privileged to be asked by the popular personal finance website This is Money to comment on a complex legal topic involving an inherited family property.
As family solicitors, my colleagues and I at Silk Family Law are often asked for advice on properties purchased with a cohabiting partner, or where one half of a couple who live together has inherited property. As regular readers of our blog will know, there is no such status in law as common law marriage, so couples who cohabit can leave themselves very vulnerable financially when it comes to property and other assets should they separate.
The This is Money question I answered was particularly complicated as it involved two siblings who inherited a mortgage-free £1m house. One sibling wanted to sell the property in order to buy a home with their partner.
The question and my answers are below:
“I have recently inherited a property, alongside my sibling of which we now own 50 per cent each. The house is a smidge under £1million and is mortgage-free.
I am living in rented accommodation with my partner and we are now looking to get out of that situation and buy our first property.
The problem is that my sibling does not want to sell the property as he would rather stay there. They are unable to ‘buy my half share’ but happy for me to look into getting a mortgage raised against the house?
Is this my only option and is it wise for me to pursue this? Ideally, my partner and I are looking to buy a £650,000 property (something I think is doable assuming I can get my fair share out of the house!) Any words of wisdom strongly appreciated!”
- No, this is not your only option, but you need to be prepared for some difficult decisions and potential family fallout if your brother is not prepared to be considerate of your position.
You and your brother hold the property under a Trust of Land. You are therefore both Trustees of that Trust. The Trust of Land and Appointed of Trustees Act 1996 (“ToLATA”) confers general powers on Trustees. These include powers to sell, mortgage and grant leases.
In order for the property to be sold you and your brother, as joint legal owners, must join in in any disposition of the property. Therein lies the problem if your brother is not prepared to sell.
It is possible, however, for you to apply to the court for an Order for Sale under ToLATA.
When considering whether to make an Order, the court has to have regard to:
- The intentions of you both when the Trust was created (i.e. when the property was inherited by you);
- The purpose(s) for which the property subject to the Trust is held (it may well be in your case that you and your brother are at cross purposes in this respect. It will be relevant that the property has been recently inherited as opposed to being purchased by you both from joint resources);
- The welfare of any minor who occupies or might reasonably be expected to occupy the property as his or her home; and
- The interests of any secured creditor of any of beneficiary (albeit in your immediate case, at the moment this is not applicable).
An Order for Sale (which would force your brother to sell the property) will be made at the discretion of the court and further consideration of your specific circumstances would be needed to confirm the merits of any such application. Often the threat of such an application encourages the other party to agree to the sale, owing to the legal costs involved. If your brother, however, sought to frustrate matters and refused to sign the transfer documents to complete the sale of the property, the court can sign the papers to enact the sale.
- Whilst you state he is “unable to buy” your share in the property, would your brother be able to purchase your interest in the property, by way of raising a mortgage himself?
In respect of the suggestion of you raising a mortgage against the property, I assume you would do so on the basis that you would still jointly continue to own the property. The terms of any mortgage would be subject to agreement with the mortgage lender but, generally speaking, as joint owners of the property both you and brother would have to enter into the mortgage deed and it would be on the basis of joint and several liability. Your brother would therefore have to be content with being liable under the terms of the mortgage for repayment of the same. In such circumstances, he would be advised to ensure that you indemnify him, so that in the event that you default in making payments under the mortgage, you will be liable to repay him any monies which he may have to pay. In certain circumstances a mortgage lender may be willing to provide a mortgage facility to you personally (without your brother also being liable), however, expert advice from a mortgage broker and a solicitor who specialises in these issues is an absolute must.
- Further consideration would also have to be given to the fact that if you were to purchase a further property prior to the sale of your inherited property, there would be an increase in the amount of Stamp Duty payable by you.Given the proposal of purchasing a property in the region of £650,000, such an amount may be sizeable.
Serious thought as to how a property will be held is necessary when buying a property with another, particularly in circumstances where you are to be liable under a mortgage (and not your partner) and potentially paying 100% of the deposit yourself.
There are two distinct ways in which it is possible to own property jointly with another person or people, these are as follows: [potential link to previous article]
- As “beneficial joint tenants”. If you and your co-owner own the property in this way, you would each own the whole of the property regardless of your respective contributions to the cost of purchase. In this regard, you do not own the property in two separate and distinct shares (although notionally you would be deemed to hold the property equally). On the death of either of you, the deceased’s interest in the property would automatically pass to the survivor, regardless of the terms of any Will that each of you may have made. This is known as the “Right of Survivorship”.
- As “tenants in common”. Unlike a beneficial joint tenancy, if the property was held in this manner, your respective shares in the property would pass in accordance with your Will or in accordance with the intestacy rules if the deceased did not have a Will. On that basis, the “Right of Survivorship” does not apply.
This is a very complex area of law so I urge anyone with a similar question, or property inheritance issues, to take legal advice from a solicitor who specialises in these matters. Also, ensure you have a valid Will in place. I also strongly advise anyone planning to cohabit to have a Cohabitation or Living Together Agreement. This sets out how any property or finances are to be dealt with if a couple who live together split up.
If you have any questions about a jointly owned property, a cohabiting relationship, or any aspect of separation or divorce, please do not hesitate to email me at Christian.firstname.lastname@example.org. You can follow Silk Family Law on Twitter on @silkfamilylaw