There are two commonly held “myths” regarding the ownership of a residential property with another person, such as your partner or spouse.
Myths of property ownership
The first of these is the belief that if a couple lives together for a long length of time they become “common law spouses” and acquire the same rights and benefits as married couples or those in civil partnerships. This is not correct and “common law spouses” do not have the same rights as married couples or those in civil partnerships.
The second myth is that same-sex couples don’t have the same rights as same sex couples if they separate. They do.
Couples who are married (whether they are same-sex or opposite-sex marriages) and same-sex couples who are in a civil partnership have more rights and protections should their marriage or civil partnership come to an end than couples (whether same-sex or opposite-sex) who are living together informally.
The burning question is “How can couples who are living together informally (without being married or in a civil partnership) protect what each of them have contributed towards the property they are living in and avoid the costs of legal disputes in sorting it out?”
What are the ways of owning a residential property?
Joint Tenants
If buyers decide to own a property as joint tenants and one of them dies, their share in the property automatically passes to the other owner. It makes no difference whether a Will has been made and a joint tenant cannot leave his or her share in the property to anyone other than the co-owner. Where property is purchased as joint tenants, each individual is deemed to own an equal share of the property, whether they have made any contribution towards its purchase price or to the mortgage or other household payments.
Tenants in Common
In this case, everyone owns a separate and distinct portion of the value of the property. If one of the owners dies, his or her share would not pass automatically to the other owner, but to whoever is nominated in that individual’s Will, or in the absence of a Will, under the rules of intestacy which apply. If you elected to own the property as tenants in common, you really should make Wills to ensure that the shares in the property pass to the appropriate parties. Even if tenants in common are husband and wife or civil partners, and the intention is for each to inherit the other’s share on death, if a death occurs and there is no Will, it is by no means guaranteed that the surviving spouse/civil partner will inherit that share of the property under the intestacy provisions.
Where an unmarried couple are buying a property together and contributing unequal amounts towards the cost of the property and/or the mortgage re-payments, then it is best to own the property as Tenants in Common and to have a Declaration of Trust drawn up by the lawyer. The Declaration of Trust sets out the shares in which the couple own the property and are contributing towards the mortgage re-payments. It also sets out what happens should the couple separate and sell the property in order to get back the amounts that they contributed towards the property and any profit made on the property since it was purchased.
In the absence of an express agreement, tenants in common are deemed to hold their shares in the property equally (i.e. 50:50) regardless as to any contributions they may have made to the purchase price and associated costs. Therefore, where unequal contributions are being made we would strongly recommend that you have a Declaration of Trust in place.
What is a Declaration of Trust?
A Declaration of Trust is a binding document which sets out the names of each co-owner and the proportion of the property they own, as well as any obligations and rights affiliated to their ownership of the property.
A Declaration of Trust can also deal with the following issues (including but not limited to):
- Initial contribution to the purchase price
- Contribution to mortgage repayments
- Legal costs, expenses and disbursements
- Contribution to Stamp Duty Land Tax
- Other costs related to the purchase – e.g. removal fees
- Repayment of sale proceeds to each co-owner in the event of a surplus
- Contribution to any deficit after a sale
- Responsibility for maintenance charges and works and outgoings including gas, electricity and water
- Cost of improvements to the property
- Share of rental income and
- Arrangements for the sale of the property
Co-habitation Agreement
Where a couple are not married or in a civil partnership, they can enter into a Co-habitation Agreement which again, sets out the proportions that each partner contributed towards the purchase of the property and the mortgage repayments, as well as the anticipated running costs of the property and what will happen if they should separate. It can also include arrangements for finances and children while you are living together and should you separate, become ill or die. You can enter into a Co-habitation Agreement at any time during your relationship but it is recommended to do so before you move in together.
Update your wills to reflect your wishes
The purchase of a property is one of the biggest assets that any of us will possess so it is important to make a will to confirm what will happen to the property on the death of one or both partners. If the property is held as Joint Tenants, then the property will automatically pass to the surviving partner, but if the property is held as Tenants in Common, each partner needs to state in their will who is to inherit their “share” in the property even if this is the surviving partner, as this isn’t always the case. For example, where one partner has children from a previous relationship and the couple feel that the survivor of them would be sufficiently financially secure, it might be that the partner(s) with children may want to leave their share in the property to their children or grandchildren.
Buying a property together as a couple whether it is your first home together, the next step on the property ladder or your forever home is an exciting and joyful experience and it is not always easy to think or talk about subjects such as death or even separating. However, it is an important part of the process and Trust Deeds, Co-habitation Agreements and Wills should be dealt with as part of the conveyancing process in order to establish what you want to happen so as to be fair to each partner and what they have contributed and in order to avoid acrimonious and expensive legal battles further down the line.
How can Moore Barlow help
When buying or selling property and land, it pays to take advice from a team that are well-connected in your local community. Our Residential property lawyers take pride in the strong ties they have with other local professionals, such as surveyors, accountants, and estate agents. This collaborative approach will ensure your legal needs progress in a smooth and timely manner.
