A Solicitor’s Guide to the 2 Different Types of Property Ownership
When you own property, there are 2 fundamentally different types of ownership involved – legal and beneficial ownership. You may have one or both. Usually the same individual holds legal and beneficial ownership. Sometimes, however, one person has legal ownership while another has beneficial ownership. Understanding the difference between legal and beneficial ownership then becomes crucial.
For example, if you are the named legal owner on a property’s title deeds but you do not have beneficial ownership, you won’t be entitled to the proceeds of sale.
We explain the difference and look at occasions when the distinction can be important.
Need specialist legal advice on the ownership of your property? Call us on FREEPHONE 0800 1404544 for FREE initial phone advice – and no strings attached.
What is legal ownership of property?
The legal owner of a property is the person named on the Land Register as the proprietor. If the property is unregistered, it is the person named as the owner on the most recent conveyance (i.e. the legal documents when the property was last sold).
There can be up to four legal owners of a property. The legal owner controls issues such as the sale or transfer of the property.
If there is more than one legal owner, however, they hold the property jointly and no individual person has a specified share. Should one owner die, the other owner or owners automatically own the whole property. This means a legal owner doesn’t have beneficial ownership as well, cannot leave a share of their property in their Will.
What is beneficial ownership of property?
In contrast, the beneficial owner is the person entitled to the economic benefit of the property. For example, you may own a property on trust for your child. You are the named owner on the title deeds, but if you sell the property, your child has the right to the sale proceeds.
Beneficial ownership is recorded in several ways, including:
· In the terms of a Will. Click here to read more about Will Writing
· In a deed of trust. Click here to read more about how our specialist Trusts Lawyers can help with trust creation and our professional trustee service
· In the transfer document signed when purchasing a property
· In a written agreement
Beneficial ownership can also be agreed upon verbally. But the problem there is providing evidence of that ownership. You probably won’t be surprised to hear that it’s usually verbal agreements which cause property disputes when it comes to beneficial and legal ownership.
Why have a different beneficial owner?
If you buy a property with someone else and you each contribute a different amount to the purchase price, you can own the property as tenants in common. This means you each have a beneficial share in a specified percentage of the property. For example, you could own 75% and your co-owner could own 25%. You have a 75% beneficial interest in the property and in the sale proceeds.
Beneficial ownership is also commonly used when holding a property on trust for someone. There are several potential reasons for using a trust. And that includes the situation where a beneficiary is a child and is therefore unable to be registered as a legal owner.
Click here to read more about the pros and cons of joint tenancy and tenants in common compared.
How can I protect a beneficial share in a property?
It is important to make sure that the property is registered with HM Land Registry. Even if you own both the legal and the beneficial interest in a property, ensuring that it is registered will give it a higher level of protection against fraud.
If you hold a beneficial interest in a property, but you are not the legal owner, then it is possible to enter a restriction on the Land Register. This is a note stating that someone holds an interest in the sale proceeds.
When the property sells, a trustee must sign the transfer along with the legal owner. When a trustee purchases a property they should arrange for this restriction to be entered. It is also open to the beneficiary to request that a restriction is registered.
Currently, the Land Register covers over 88% of England and Wales. It records 26 million individual property titles, and that number is steadily rising. The Land Registry is very keen to encourage people to have their property registered – not least because doing so avoids so many problems. If your property is not yet registered and you are thinking of a voluntary land registration, contact our specialist property solicitors who can explain your options in a FREE initial no strings attached advice call.
When is the difference between legal and beneficial ownership important?
Beneficial ownership is also really important when it comes to cohabitation disputes.
If you have lived with someone in a property and they are the legal owner, you will still be entitled to a share of the sale proceeds if you are a beneficial owner. This is the case whether the other person is your partner or just a friend. (The situation is substantially different when it comes to divorce).
For example, if you have made financial contributions on the understanding that you would have a share of the property, you will have a beneficial interest. This is the case even if the Land Registry has not registered you as a legal owner.
Alternatively, you are likely to have a beneficial interest if have paid money towards the mortgage, renovations or an extension – and in return, you both intended that you have a share of the property.
If you do have a beneficial interest, then your rights are protected under the Trusts of Land and Appointment of Trustees Act 1996 – known as TOLATA. You will, however need evidence of that beneficial interest. You have to be able to show (preferably in writing or written documents) that you agreed with the other owner that you have a share of the property. If you believed that you had a beneficial share and acted to your detriment as a result of this, you may also be able to recover your interest in the property. There does not need to be a written agreement, sometimes called an express trust.
Click here to read more about Joint Property Ownership Disputes
Beneficial ownership will also be considered by tax authorities and when dealing with the division of assets in a divorce.
