Posted on 11.3.16
We discussed last month in our blog post how 60% of European couples were putting their money into buying their first home rather than splashing out on a wedding. However, with two-thirds of couples never having heard of a cohabitation agreement, sometimes known as a living together arrangement or ‘no-nup’, how is each supposed to know what their financial entitlements are if their relationship should break down?
The picture can get more complex if you decide to buy a property with more than one other person. There’s a maximum of four people who can be registered jointly as co-owners of a property, so if you decide to buy with a group of friends or with family, which is a common way to raise a larger deposit, it’s best to know what you are getting into first.
More than one co-owner – who has the final say?
If you’re buying a property with a group of friends or relatives, a tenancy in common arrangement is favoured. This type of legal set-up means all co-owners have a say, but it doesn’t mean that you have to own equal shares of the property. As a joint owner if you want to sell your share or if you want to take a loan out against its value you would have to seek all of the other owners’ consent to do so. You also have a legal right to live in the property unless stated otherwise by a court order.
When getting a joint mortgage, the mortgage provider will insist on making each member of the party “jointly and severally” liable. What this means is that if one of the co-owners stops paying their part of the mortgage, the others will have to pick up the slack. The way to get round this beforehand is to first of all think about your long-term plans; if you think you might be moving out within the next couple of years to live with a partner or move city for work purposes then you can plan this into your legal documents. Your second port of call is to discuss your options with a legal expert who will explain the ways forward clearly.
A likely way forward in this scenario is to draw up a Deed of Trust with a power of sale. This legally binding document makes clear what will happen if the property is sold and can prevent problems from occurring by answering such questions as:
- When can the property be sold?
- How much notice needs to be given before a co-owner can end the arrangement?
- If a person decides to sell, do the other co-owners have first right of refusal?
- How are the proceeds of the sale divided up?
The above addresses tenants-in-common but what about ‘Joint Tenants’?
Joint Tenants – acting as one
The agreement is favoured by married couples and those in civil partnerships as joint tenants must act as one in the eyes of the law i.e. one person can’t sell part of the property or just mortgage their share. A joint tenancy can be severed which then makes all legal owners of the property tenants in common, which then allows each person’s share to be dealt with separately. If you are a joint tenant of a property and one person dies, the property immediately passes over to the other owner.
Not a co-owner or joint tenant but live in a property with your partner?
If you have no stake in a property and aren’t married you technically don’t have a legal claim on your partner’s money or assets. There are some cases however, when a partner can make a claim if they have contributed to the upkeep of the property, paid part of the mortgage or purchase price. If so, a court may decide the individual has acquired an interest in the value of the property.
The best way to set out who pays and contributes what is to have a cohabitation agreement drawn up. This is a legal agreement, usually between an unmarried couple who have decided to live together. It’s used to regulate things such as mortgage payments, bills and other out-goings and day-to-day maintenance of the property.
It’s used as a way to protect your monetary investments and can also set out how each parties’ assets should be treated if things do unfortunately go wrong.
To discuss any of the above with one of our legal property experts, give us a call on 0161 930 5151. You can also make an enquiry using our online contact form and somebody will give you a call back.