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Cohabiting and buying property together… what do you need to know?

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

Cohabiting couples frequently misunderstand how the law applies to them… and the most common misunderstanding is that one can gain rights by virtue of the length of the relationship. This is not in fact the case and there is no such thing as a ‘common law’ husband or wife, in English law.

Looking at property ownership specifically, when two or more people buy property together it is very important that they understand the types of joint ownership available to them and decide on the method best suited to them. In doing so, however, they need to understand fully the actual and potential implications.

When the property is sold, all mortgages and charges have to be repaid in full, as will the estate agent 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 funding the purchase, the person paying or contributing the larger share of the money may wish to ensure that, when the property is sold, they are entitled to receive a larger share of the balance than the other joint owner or owners.

With the credit crunch often couples now have to find substantial deposits. As a result it is increasingly common for this to be provided by one of the buyers only or with the help of one of their families.

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 whoever 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, in the majority of cases, it is only if the couple are married or in a registered Civil Partnership that a Court has power to change property rights. Owners who buy as tenants in common 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.

It is very important that joint owners make Wills or update these at the time of a new purchase. It is particularly important for a 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?

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

Advice with regard to Wills and/or Inheritance Tax, or Lasting Powers of Attorney/Living Wills, can be provided by our local specialist, or contact Jenny Pierce on 0117 9292811 or at jenny.pierce@wards.uk.com

Cohabiting couples may wish to have an agreement which goes beyond property ownership, namely a ‘Cohabitation Agreement’ or ‘Living Together Agreement’. Further advice in this respect can be provided by our local family law specialist, or contact Mandy McCabe on 01275 850460 or at mandy.mccabe@wards.uk.com. Alternatively, if relationship breakdown advice is needed then Mandy and our team can assist with this.

For more information as to joint ownership of property please speak to your usual Wards contact, or contact Susan Ellis on susan.ellis@wards.uk.com.

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