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Cohabitation and joint property ownership

The case of Jones v Kernott was decided last week by the Supreme Court, (formerly the House of Lords), and is a landmark case dealing with the rights of unmarried couples who have purchased property together in their joint names.

In this case Mrs Jones and Mr Kernott bought a house together, but had later separated without changing the legal ownership, although Mr Kernott had bought another house to live in. Some 12 years later he sought to recover a 50% interest in the joint property. In the Court of Appeal, the decision was that the couple were entitled to 50% each. The result of the Supreme Court decision was to reverse the earlier decision and Mr Kernott was held to be entitled to 10% only. In this case the couple had purchased the property in joint names but without entering into any empress declaration of trust (that is a separate deed) to set out the terms of their joint ownership.

The Supreme Court ruled that in dealing with future cases of this sort, the starting point will be how the joint ownership is expressed. There will be a presumption that they own as ‘joint tenants’ in ‘law and equity’. So in cases without any express declaration to set out the position, it would be expected that the co-owners owned the property in equal shares. This can however be displaced by evidence that their common intention was different at the time, or later changed. Each case turns on its own facts. Financial contributions are relevant but other factors may affect what shares were either intended or fair.

When two or more people buy property together it is very important that they understand the types of joint ownership which is available to them and decide on the method best suited to them, but in so doing also understand fully the implications or potential implications.

When the property is sold, all mortgages and charges have to be repaid in full, as will the estate agents and conveyancing fees on the sale. Only the balance will be available for division between the owners. It is this balance that the joint owners must consider.

Unless the joint owners contribute equally to the purchase monies, the person paying or contributing the larger share of the monies may wish to ensure that, when the property is sold that they are entitled to receive a larger share of the balance than the other joint owner or owners. With the credit crunch couples now have to find quite large deposits so it is very common for this to be provided by one of the buyers only, or with the help of one of their family. Parents frequently say these contributions are gifts to their child and their partner jointly, but do not think through whether they would feel the same in the event of the couple later separating, or one of them dying.

Before joint owners commit to buying property they should consider:

1. Do they want the property to be jointly owned so that each has an equal interest in the property and so that if one dies the survivor would automatically own the whole property?

OR

2. Do they want the property to be jointly owned so that each owns a precise and specified share of the property and are each able to leave this share by Will to who ever they choose. If so, then do they wish:

(a) To own the property in equal shares; or
(b) To own the property in unequal shares, (i.e. to protect any owner who is putting more money into the purchase than the other?)

Option 1 is known as ‘Joint Tenants’ and Option 2 as ‘Tenants in Common’. It is important that this is recorded at the time of purchase as it is usually only possible to arrange for this to happen later if all the joint owners agree (which is rarely the case when there is a dispute). Otherwise, usually it is only if the couple are married or in a registered Civil Partnership that a Court has power to change property rights. Unmarried couples will be advised to enter into a Declaration of Trust, a deed to set out their respective interests in the proceeds of sale and matters relating to this and it is vital that they do this. As with a Will, if their circumstances change they should look to updating the Declaration, or seeking further advice.

It is very important that joint owners make Wills or update these at the time of a new purchase. It is particularly important for cohabiting couple to make Wills whatever their choice of joint ownership. These can address very practical issues which cause considerable distress otherwise i.e. who is the executor with the right to make funeral arrangements: who do the contents belong to: is there any provision to pay off the mortgage: who will benefit from life insurance: can the surviving owner afford to pay a mortgage on their own, and can they stay in the home?

With the recession, it is perhaps not surprising that we are experiencing increasing numbers of cohabiting couples seeking relationship breakdown advice.

Cohabiting couples frequently have misconceptions as to how the law applies to them, and the most common being that of the ‘common law’ husband or wife, which does not exist in English law. The law relating to cohabiting couples is however quite complex. As can be seen in Jones v Kernott, it is vital that cohabiting couples who separate seek advice early on, as the separation in this case dramatically affected the eventual shares. It is important that any dispute is resolved as soon as possible. Few will be able to afford or justify taking their case to Court, or as far as the Supreme Court, to resolve it.

As part of our Conveyancing service our conveyancers will advise joint purchasers of joint ownership issues and prepare any Declaration of Trust.

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