Last year, an English Housing Survey found that home ownership levels in the UK are at an all-time low. In fact, they have reached their lowest rate since 1985. Given the cost and inconvenience of buying alone, as reflected in these statistics, many people now choose to make this significant investment with another person. Whether you’re buying as part of a couple, or with a relative or friend, there are some essential steps that you’ll need to take in order to protect your interest.
Joint tenants or tenants in common?
When you buy a property with another party this may be as joint tenants or tenants in common. Either way, you will both be legal owners of the property but there are some key differences that could become particularly important if the relationship breaks down.
Joint tenants. If you’re joint tenants then you’ll have an equal share of the property. If something happens to one joint tenant then, as a result of the “right of survivorship” that person’s share of the property will pass to the remaining joint tenant, regardless of any Will.
Tenants in common. For tenants in common, shares in the property don’t have to be equal. Plus if one person passes away, their share can be passed on via a Will and does not pass to the surviving person.
If you’re buying as joint tenants with someone and the relationship does break down, it will be important to sever the joint tenancy with written notice so that you become tenants in common. Otherwise, if something happens to you, your share of the property will pass to your ex partner/flat mate rather than in accordance with your Will.
A declaration of trust
Creating a declaration of trust for a property can be very useful where the situation is not straightforward, for example one person has put more cash into the deposit or is paying a higher share of the mortgage. The declaration of trust will set out how the property is owned and will make it easy to identify the beneficial interests in it. If this is not clear and a relationship does break down it can be difficult to identify who is entitled to what, especially if there have been unequal contributions. A declaration of trust is a simple way to protect your beneficial interest and avoid costly disputes further down the line.
A cohabitation agreement
If you’re buying property with someone else then a cohabitation agreement may be helpful. This simply sets out the agreement between individuals who live together, or intend to live together. So, it may record assets that one person is bringing in to a romantic relationship and/or provide a structure for what will happen if the parties to the agreement decide to go their separate ways. Like a pre-nuptial agreement, a cohabitation agreement is not legally binding in the UK but is governed by the rules of contract law and the courts have discretion as to whether or not it should be upheld. It’s worth noting that there is no such as thing as a “common law husband or wife” – something that people living together as a couple often believe provides this kind of protection. So, cohabiting couples will need to create their own protection with a cohabitation agreement if there is no interest in marriage.
When purchasing a property with someone else it’s essential to ensure that you have a clear understanding of ownership and a record of interest. This could save time and money in the future if any of you decide to go your separate ways.