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What should cohabiting couples consider before buying a property?

In this guest post, Quittance  Director Chris Salmon explains what cohabiting couples should consider before buying a property, and what steps they can take to protect their rights.

In England and Wales, “common law” marriages are not legally recognised. Cohabiting couples do not have the same legal rights and protections as civil partnerships and married couples, no matter the length of the relationship.

This lack of legal protection exposes cohabiting couples to several legal hazards, and particularly with respect to property they own. Fortunately, there are simple steps you can take to protect your rights and those of your partner when you buy a home together. 

Are many unmarried couples buying property together?

2020 marked a significant rise in the percentage of couples who were unmarried and not in a civil partnership purchasing property together. One lender saw a 60% increase in mortgage applications from cohabiting couples, compared with 2019.

This continues a trend reported in The Guardian, with the number of cohabiting couple households increasing by 25% over the past decade. A recent study also found that 24% of Britons mistakenly believed a cohabiting partner would automatically inherit a deceased co-owner’s share in their property.

How do cohabiting couples’ rights affect their property?

With regard to property ownership, cohabiting couples rights depend on how the ownership is structured, and if the couple has any supporting legal agreements in place.

If the relationship ends (even on good terms), a lack of clarity regarding ownership can lead to anger, frustration and the possibility of legal action as the parties argue about who owns what share, who gets to stay in the property, and how the other party should be compensated or bought out.

If the worst should happen and one co-owner unexpectedly dies, the surviving partner may find they have no automatic right to inherit their deceased’s share of the property. The share could instead pass to a child from a previous relationship, or to an ex-spouse or family member, perhaps depending on the terms of a forgotten will.

How should cohabiting couples’ property ownership be structured?

Co-ownership can be restructured at any time (with the consent of both parties). Co-owners can also, at a later date, draw up or amend a legal agreement to recognise specific rights and obligations.

That said, it is simpler to get it right first time. When you buy a property together, your conveyancing solicitor will ask if you want to own as “tenants in common” or “joint tenants”.

You should consider Tenancy in Common if…

When a property is co-owned by Tenants in Common, each tenant owns a fixed percentage share of the property. This does not need to be an equal 50:50 split. By default, each owner’s share can be sold, transferred or given to anyone, subject to mortgage conditions.

Tenancy in Common can be used to reflect circumstances where one party is making a bigger contribution to the deposit or mortgage repayments. A couple can use this option to maintain clear financial independence, or if they want to retain the option of leaving their share to a child or family member in their will.

With this option, it is clear who owns what share of the property and, in the event that the whole property is sold, what each owner’s cut of the sale proceeds would be.

One downside of Tenancy in Common is that the co-owners do not have automatic “rights of survivorship” if one owner dies. This issue can be addressed with a suitable legal agreement. Mortgage arrangements can also be more complex for Tenancy in Common.

You should consider Joint Tenancy if…

At first glance, Joint Tenancy is the simpler option. Joint Tenants each own the whole property together, not as separate shares.

Joint Tenants have an automatic right of survivorship, meaning that if one joint tenant dies, the other owner (or owners) inherit the deceased’s ownership of the property. In addition, Joint Tenants cannot leave their “share” of the property to someone who isn’t already a Joint Tenant.

Joint Tenancy is the more common choice, whether a couple is cohabiting, in a civil partnership or legally married. Although this is the more straightforward option at the outset, blindly entering a Joint Tenancy can create problems later.

If one owner has put up all the money for the deposit, or will be contributing the bulk of mortgage repayments, Joint Tenancy will not reflect this. By default, each owner named on the property deeds enjoys the same rights, even if one makes no financial contribution towards the property whatsoever.

Without a Deed of Trust or similar legal agreement in place, the end of a relationship between Joint Tenants could present some difficult choices. Who gets what share of a property’s sale proceeds? What if one party doesn’t want to sell? How should non-financial contributions be compensated?

How can couples protect their rights and financial interest in their property?

During a break-up is hardly the easiest time to resolve a property dispute and find a compromise that satisfies all sides. It is better to legally define and answer any questions regarding ownership shares, rights and financial obligations at the outset, when you buy the property. This can be done with a Deed of Trust or Cohabitation Agreement. 

It can be uncomfortable to make a plan for “who gets what” if a relationship ends, but a pragmatic attitude now could save a great deal of stress, pain and additional expense later.

What is a Deed of Trust?

Although not a legal requirement when buying property with someone else, a Deed of Trust (or Declaration of Trust) can be used to define the rights, financial interests and obligations of each of the co-owners. You can use a Deed of Trust to:

  • Set out the process if one owner wants to be bought out.
  • Set out who receives what when the property is sold.
  • Agree who gets to keep the property after a separation.
  • Protect the interests of someone who is contributing to the property purchase, but who won’t be named on the deeds (such as a family member lending deposit money).
  • Address a range of other financial and non-financial issues.

What is a Cohabitation Agreement?

A Cohabitation Agreement covers similar ground to a Deed of Trust. These agreements are often broader in scope and can also include couple-specific concerns, such as:

  • What happens to pets in the event of a break up?
  • Who is responsible for property maintenance?
  • Who is responsible for debts owed by the household, or utility bills?

The idea of a Cohabitation Agreement might be distasteful to some, but like a prenup, a clearly-worded agreement can help to avoid considerable confusion and argument in the future. It is also an opportunity to recognise non-financial contributions towards running a household, and reflect these in the ownership structure. 

Unlike some documents, such as wills and employment contracts, a Cohabitation Agreement is only legally-binding if it is executed as a deed. If you wish to draw up a Cohabitation Agreement, you should discuss this with your solicitor.

Buying with family or friends 

A maximum of four people can be named as the owners of a property at HM Land Registry. Much of the advice in this article also applies to anyone buying a property with friends or family.

Buying your first home with others is an increasingly popular way to get a foot on the property ladder. Given the temporary state of co-owning a property with friends, however, it is even more important that the ownership is correctly structured, and that a suitable Deed of Trust is drawn up to protect all parties.

Whether you are buying with a partner, friends or family, don’t treat the ownership structure as an afterthought. Your solicitor will explain to you the pros and cons of each form of ownership and will help you draw up legally-binding agreement, so that, whatever the future brings, your rights and financial interest in your property are protected.

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