Tenants In Common: Treatment of increase in equity.

[OnTheHop]

I own a house with DP, as tenants in common.
We plan to sell in a few years and pursue different lifestyles.
When we bought it was along the following lines:

My cash contribution: £100k
DP cash contribution £30k
Joint mortgage : (paid 50/50) £70k

(not the RL figures, but in roughly the proportion)

The house has approximately doubled in value.

Would it be normal to each reclaim the initial cash contribution and then split the remainder 50/50?

This doesn't seem fair to me, as each amount invested has risen in value, and surely each contribution should be repaid pro rata to the current value?

We don't actually understand the way the deed is written, and will go back to the solicitor to ask, but I thought I would find out what is considered normal, and what fair.

If the mortgage is paid 50/50 then I believe the norm is to split 50/50 after the initial stakes are repaid. Other arrangements can be written into the original deed

I hope that is not what I signed up to, given that my contribution was so much more than DPs, and in fact more than the joint mortgage we took on.

I will have lost the increase in value of equity on a lot of money.

It seems fairer to me if the initial stakes are paid pro rata.

There's something for people to look into very closely.

If there was no explicit agreement about what particular shares you would own, I'd say that you won 50% free of mortgage, he owns 15% free of mortgage, and the balance is divided between you equally after paying off the mortgage. But because it wasn't (presumably) spelled out you take your chances.

The mortgage is all paid off now.

Hmmm. Without a calculation written into the deed I think you may struggle.
I did this with my sister but we spelled out a scenario beforehand.
Which made it a lot simpler once I came to sell.
She put 20% in initially so she was eligible for 20% of the profit once fees had been paid and I had given her her original stake back.
Did you ever discuss scenarios or did you both assume different results.
I do see your point but it could be difficult to get what you believe you are entitled to.

You own the percentage of property as per the tenancy, presumably a % of the total put in. Tenants in common means you are slicing up the ownership. So he owns 23 ish % and you own the rest.

You split the proceeds accordingly. If you choose to come to an arrangement regarding the mortgage payments and equity above that's up to you. You'd be gifting him part of your share.

This is one of those times when legally it's quite clear but morally you may feel you want to do something differently.

If you had been joint tenants you could have protected your initial investments through deeds if trust and then the uplift would be equally owned.

@Isleepinahedgefund You can be a joint tenant with unequal interests in the land. As joint tenants OP could not have protected her greater contribution.

My understanding is that we bought as Tenants in Common precisely because our contributions were not equal, and I wanted to protect my greater interest.

What if it worked the other way around ?

If the market had crashed and you were in negative equity, would you have been happy to take on a higher percentage of the debt ?

Don't know if this will add up but hear me out

The house has doubled so now worth £400k. You should get £200k for the doubling of your £100k, DH gets £60 for the doubling of his. How much of the mortgage has been paid off? How ever much you then receive you then split that 50:50 and each add it to your respective sums above.

Dunno if that works and I'm known for over complicating things!

Whichever way, I don't think a full 50:50 is fair.

Without seeing the Declaration of Trust anything said here is just speculation.

“If the market had crashed and you were in negative equity, would you have been happy to take on a higher percentage of the debt ?”

If the market had crashed I would expect my share to reduce accordingly, yes. Pro rata to the amount we each put in. So if the house value fell by 50% I would expect the value of my share of the house to have fallen. Just as if I had bought on my own.

MiniBreak; I think the same as you.

The whole mortgage is paid, no debt on the property.

LittleMiss, yes, it will come down to what is in the deed and I will find a solicitor to explain it to me. It honestly reads like gobbledygook and I cannot follow the premise. I don’t know what possessed us to go into this without understanding it in detail.

I just wondered if there was a standard approach or expectation as to how the increase in equity was treated.

Can you copy the main terms of the declaration here?

Didn't you agree the % share of the ownership when doing the paperwork for the solicitor? We had to agree the share & sign with witnesses when we brought our house.