I frequently read reports in the media about people who have decided to buy a property together, but find themselves court arguing about whether they actually own a share in the property or about how much of the equity they are titled to.
Informality in shared property owning arrangements are a recipe for disaster. If the relationship sours and one party wants out, the vagueness that many people suffer from about who owns what leads to an expensive and risky court case.
These people may be individuals or family members) who have bought a property together (such as this woman who bought a house with a friend as it was the only way they could afford a home) or they may be cohabiting couples, who have often assumed that if they split they will have the same rights as a married couple, when in fact there is no such thing in English law as a common law marriage.
There was a surge of cohabitant property disputes about 20 years ago, caused by the Land Registry not then insisting that co-owners declare on the transfer deed whether they would hold the property as joint tenants or tenants in common. In those cases it was often not at all clear how a property was owned. If the parties are joint tenants, they are entitled to equal shares. If they are tenants in common, they may be entitled to differing shares or equal shares, depending upon what they both intended.
Unfortunately, I often find that when you ask people in these cases “What did you intend?” they pull and face a tell me that they intended to live together for the rest of their lives. They are often not sure what the agreement was. Their ex often has a different view of what they agreed. If they put in differing contributions to the purchase ;race or subsequent mortgage payments, they often assume that they will get a share that is equivalent to their contributions, but it isn’t always so straightforward. If they declared to the Land Registry that they would hold the property as joint tenants, they would get half each. If they said they were going to be tenants in common, but it is not clear what shares they agreed, the court may have to decide what they intended.
Conveyancers have woken up to this problem and nowadays will be careful to ask their clients what shares they will own. They will usually advise clients who intend to hold a property as tenants in common that just ticking the box on the transfer is not enough; they should also execute a declaration of trust, setting out who gets what if the property is sold.
But is a declaration of trust enough?
I would suggest that in a case where a couple will cohabit in the property, a mere declaration of trust is not enough. It’s better than nothing, but it isn’t comprehensive enough to do the job properly.
A better option is to have a cohabitation agreement (also known as a living together agreement).
A cohabitation agreement can cover more than just the issue of how the equity is divided between the parties. It can also deal with things such as:
- Will one party have the right to buy the other party out, and for how much?
- Who will be responsible for paying the mortgage during the relationship? Will that party gain an additional share in the equity as a result or will the shares be unchanged?
- Who will pay the mortgage if the relationship breaks down and one of the parties moves out?
- It can make clear whether expenditure on the property, such as paying for an extension or a new kitchen will or will not entitle the paying party to a greater share of the equity.
- What will happen about any other assets? The agreement can make it clear that neither party will gain an interest in the other parties’ assets (including their businesses – particularly relevant where one party owns the business and the other party works for it).
- It can set out an agreement about what will happen to joint bank accounts or where the ownership of an asset or chattel might not be entirely clear, such who is the actual owner of the family car (being the registered keeper of the vehicle at DVLA is not the same as being the car’s owner).
- It can make it clear that neither party can claim against the other’s estate after their death under the Inheritance (Provision for Family and Dependants) Act 1975.
- It can set out an agreed timetable for one party to move out if the relationship breakdown (partially important where the property is held in the sole name of one party).
- It can set out an agreed timetable for the property to be marketed for sale in the event that the relationship ends.
- Most importantly, in a case where the property is held in the sole name of one party, it can make it clear that the other party will not gain an interest in the property.
A cohabitation agreement is in many ways very similar to a pre-nuptial agreement, except that it is more likely that a cohabitation agreement will be upheld, whereas pre-nuptial agreements may not be, albeit that their status in law and enforceability is now much stronger than they once were following the Supreme Court’s decision in Radmacher v Granatino in 2010.
Most couples who cohabit and where one or both of them own a property should have a cohabitation agreement. Very few do.
My advice to anyone who is going to cohabit with someone and where one or both parties owns a property is that a cohabitation agreement is essential. Not having one runs the risk that if the relationship ends, they end up in a huge and very expensive dispute about who owns what.
The law that applies to cohabitants is wholly inadequate. In a divorce or civil partnership dissolution, the court has enormous discretion about how it can divide a couples’ assets and income between them in order to achieve fairness and meet their needs and the needs of their children. In a case involving unmarried cohabitants, the court’s powers are far more constrained, and the outcomes can be unfair or not meet people’s needs.
The government has announced that it intends to reform the law relating to cohabitants, but at this stage it is not yet known when this will happen or the form that it will take. (Read my blog here about the two alternatives ways in which this reform might take place – a difference model where cohabitants have different rights to married couples or a de facto model whether they have the same rights as married couples).
It is likely that whatever form the reform eventually takes, couples will be given the option to opt out of the new law by entering into a cohabitation agreement.
Until the government finds time to reform the law relating to cohabiting couples, they should ensure that they have a cohabitation agreement. If and when reform comes, a couple should decide if they want the new (and hopefully better law) to apply to them, or if they have a cohabitation agreement and opt out of the new law.
16 August 2005
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