Buying a partner out of a property

Buying a partner out of a property

The starting point where you would like to buy your co-owner out of the house is whether you have the legal right to do so.

The legal right to buy out your co-owner depends on how you own the property beneficially and whether you have a co-ownership deed which you entered into which contains the right to buy out your co-owner:  Under English law, property is jointly owned under what is known as a trust for sale. This generally means that if 1 owner wants to sell the property, unless there is a compelling reason for the other owner to refuse, the property should be sold. Note that this doesn't mean that there is any right to insist that a co-owner sells his or her share to the other co-owner. The only way to ensure this happens is to create a right in a co-ownership deed or other form of contractual document.

In the absence of a written commitment to buy out the other owner, the other most compelling factor is if the equity in the property is not owned equally i.e 1 of the owners has a larger share. This would be a factor a court would take into account if a dispute arises about any rights to buy out a co-owner. This is why it's also likely relevant as to whether you jointly own the property as joint tenants or tenants in common. The difference between the 2 is :-

Joint Tenants: - if you own the property as joint tenants, there is a presumption that you own the equity in 50:50 shares. However, you can negotiate a "severing of joint tenancy" agreement, essentially converting ownership to tenants in common, which may help in improving your prospects for buying the other party out of the house or flat.

Tenants in Common: This ownership type means that the owners shares are separate legally and is the most common way to co-own properties for unmarried couples or co-owners who are not in a  relationship. 

If you jointly own a property but don’t have a clear trust deed giving you the right to buy the other owner out, you won’t have the legal right to buy them out so you would need to negotiate or an application to court would need to be made seeking an order enabling buy out. 

What if the co-owner refuses to sell to you?

If the other owner simply refuses to sell his or her interest to you, most likely due to a fraught breakdown in the relationship, the only option is to sell the property. Under English law, the starting point (subject to express agreement or other legal reasons such as children or disabled people living at the property to depart from this presumption) is that if 1 co-owner wants to sell a property, the property should be sold.

What is the equity worth?

If relations are fairly amicable and your co-owner is willing to consider you buying him or her out, you will then need to check the likely amount of equity in the property, over and above the outstanding value of the mortgage.

You will next need to consider the value of the property and if you cannot agree, a possible mechanism to value might be to appoint 3 or 4 estate agents to value and to agree to take the median value of the valuations obtained. This is just 1 possibility, it's a question of negotiating and also possibly considering any valuation for remortgage and the negotiating positions may also be impacted by whether you own the property as joint tenants (which sets up a presumption of 50:50 entitlement to equity) or whether you bought as tenants in common, with unequal proportions of equity.

Remortgage needed to buy out property co-owner?

Having agreed the position on equity, you will need to have the funds or be able to raise the funds to buy out your co-owner’s equity in the property. This might be through remortgaging (although you may have an issue with loan to value and/or may not meet a lender’s requirements on affordability generally). If money js being borrowed from family or other source, you would need to disclose that to your current or remortgage lender.

Next, and probably most important of all, if you have a mortgage, the person who is being bought out will need to either be removed from the mortgage on completion of the transaction (which means your mortgage lender will need to be satisfied that you alone will be able to pay the mortgage payments going forward) or if they are unwilling to agree, you will need to remortgage.

Transfer of equity

If all the above issues, steps and hurdles can be overcome, the legal work involved is generally relatively straightforward. A transfer deed will be needed together with work associated with remortgaging and then registering the change in ownership at the Land Registry.

As 1 of the UK’s largest law firms specialising in all aspects of property law and conveyancing, we have the experience to advise you on a property buy out transaction. We can deal with the negotiations for you and advise you on all aspects and deal with the conveyancing work. Please do get in contact to discuss how we can help and our fees.

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