Despite the current economic downturn, the housing market has experienced a surprising spike post-lockdown, and many couples are resuming their property purchases.
Home-ownership is a huge commitment for anyone, but if you are buying a property as an unmarried couple there are even more implications and it is crucial that you understand your legal position. Here are some of the main issues to be aware of before making a purchase and common legal pitfalls to avoid expressed by Lucinda Holliday, thee head of family & divorce at Blaser Mills Law.
Joint tenants and tenants in common
Up to four people can buy a property together in the UK, but how the property is divided and how the mortgage works is very much dependent on whether you decide to take out a ‘joint tenancy’ or ‘tenants in common’ mortgage.
Buying a property as joint tenants means that if one of you dies, the surviving tenant will automatically have sole ownership regardless of what your Will might say, whereas if you buy as tenants in common, you can leave your share of your property to whoever you wish in your Will. This is one of the first things you should consider before making a purchase.
Declaration of trust
You should also think about whether you want to enter a ‘Declaration of Trust’. This is a legally binding document in which the legal property owners declare that they hold the property on trust for the beneficial owners, and it outlines the shares in which the beneficial interests are held.
You can enter a Declaration of Trust at any time, but you should aim to do so at the same time you complete your purchase. The Declaration can also be registered at Land Registry, but this isn’t obligatory.
Those who enter a Declaration of Trust don’t have to be the legal owners of the property and could be additional parties who have contributed to the purchase price for example parents.
While a Declaration of Trust is a good way of evidencing a party’s beneficial ownership if they are not registered as one of the legal property owners, it is important to know that only the legal owners will have the ability to sell or mortgage the property. Therefore, a Declaration of Trust isn’t always the best way of protecting your investment in a property where you aren’t named as a legal owner.
You must also bear in mind that a Declaration of Trust is simply a personal agreement between you, your co-habitant and any other parties who are not registered as a legal owner of the property. Your obligations to your mortgage lender will always remain with the legal owners, no matter what proportions in which you share the beneficial ownership.
Agreeing the percentage of your property ownership
When two people buy a property together as joint tenants, their individual shares are considered to be 50:50, regardless of how much each person puts towards the cost of buying the property. However, if you buy as tenants in common you can express how much of the property each of you owns, and it is possible to hold unequal shares and shares that can be changed over time.
If you would like to hold unequal shares, for example because you are contributing significantly more than the other person, you will need to have your percentages of ownership or your contributions to the propertydetailed in a legally binding document.
You may also want to have a cohabitation agreement drawn up to regulate property obligations and the payment of bills, both now and in the event of a future dispute.
Also known as a ‘living together agreement’, a cohabitation agreement can give you both certainty over how you will deal with the important issues related to your home, as well as saving time, money and stress and making it easier to maintain a positive relationship with your partner whatever happens.
Paying the mortgage and other bills
If either you or your partner will be contributing more than the other towards mortgage payments and other bills, you may want this to be considered if you ever come to sell the house. Therefore, you should agree in advance the percentage that each of you will be contributing to costs and whether this difference should be reflected in how much you will both receive if the property is sold.
If you marry or plan to marry
Throughout the process you need to think about whether you plan to marry, even if in the very distant future, as once you do so, the situation changes. The matrimonial courts can transfer assets between spouses as they consider fair and reasonable in the circumstances of your case regardless of who might own the property or what shares might be agreed prior to the marriage or civil partnership.
Therefore, simply signing the transfer deed to say how you own the property will not suffice. Instead, if you plan to marry, but want distinct shares of a property in the event of your separation, you will need a prenuptial agreement.
In the event of a split
Although you may not want to think about it, relationships do break down, and it is in your best interest to have a plan in place for what happens to the property if you and your partner separate.
What happens will depend on many factors, including whether you bought the property in joint names or if it is in one of your sole names, whether or not you both agree it should be sold and whether one of you can afford to buy out the other. Therefore, you should look to have a legal document drawn up at the very outset which includes detail of whether the property must be sold in the event of a split and how it will be valued.
Seeking expert advice
Issues related to your property at the end of a cohabiting relationship can be hard to navigate, especially as there is no specific law designed for cohabitants and there are still no “common law” rights to property simply because you have lived together . If you find yourself in this situation and are unsure about how to proceed, it is always worth speaking to a qualified family lawyer and exploring all options before turning to court. They will assess your unique circumstances and advise you on which approach to take to ensure you reach the best possible outcome.