Buying a property with your partner? Should you enter into a cohabitation agreement?
On 12 March 2021, the High Court handed down its judgment in the much-publicised case of Rowland v Blades  EWHC 426 (Ch). The case concerned a dispute between two former partners over the ownership of a “large country house” in Oxfordshire (“the Property”).
In March 2009, the Claimant purchased the Property for £1.6m. The Claimant solely funded the purchase (including all associated costs), but the Property was transferred in the Claimant and Defendant’s joint names.
Following a breakdown in the parties’ relationship, the Claimant sought a declaration from the High Court that the house belonged only to him. The Defendant argued that the former couple had always intended for her to have an equal “stake” in the house – as evidenced by the joint transfer and an email sent by the Claimant in June 2011 (following the breakdown of the couple’s relationship) that said: “I’ve no intention of trying to take [the Property] away from you – it’s at least as much yours as mine”.
By trial, the property had increased in value to £2.5m.
Finding in favour of the Defendant, the judge held that – whilst the Claimant might now regret his earlier display of generosity – the available evidence indicated that at the time of purchase the parties had shared a common intention to “own the property jointly at law and equity”.
On one hand, this was a surprising decision: despite the Claimant having contributed the entirety of the purchase price, the judge nonetheless concluded that the Defendant enjoyed equal ownership of the former property. On the other hand, the decision to transfer the Property in both the parties’ names was strong evidence of the parties’ common intention to own the Property equally – as were the subsequent email exchanges.
Firstly, what is a cohabitation agreement? Cohabitation agreements record the intentions of couples or other parties who agree to live together in relation to property and any other assets and govern what should happen to the property or assets in the event of a relationship breakdown.
Cohabitation agreements can cover a wide range of agreements between cohabiting parties and they often deal with the important issues of:
- who is to pay the mortgage and other property and/or living expenses and in what proportions;
- In the event that one party wishes to sell the property, the mechanics for that sale.
- the shares held in the property and how the equity, on sale, is to be divided in accordance with the parties’ respective shares
- what happens if one co-owner wants to sell the property and the other does not;
- the arrangements for one party to buy the other’s share in the property and how the property will be valued for that purpose;
- ongoing financial support between cohabitees; and
- the living arrangements and financial provision to be made for any children.
Why are cohabitation agreements so important?
The number of couples choosing to cohabit has risen considerably in recent decades, from around 1.5 million in 1996 to around 3.5 million in 2020. Many people wrongly believe that couples living together effectively as husband as wife will have access to the same legal protection regarding finances and property as married couples upon separation. This concept of “common law marriage” is a myth which 46% of people still believe in.
In addition, rising house prices mean that those wishing to purchase property are choosing to pool their financial resources together. These buyers are typically saving for longer than previous generations and many receive funding from parents. It is becoming increasingly important to ensure that interests in co-owned property are protected.
Unmarried couples have no automatic rights to ownership of each other’s property or assets on relationship breakdown and cannot rely on matrimonial law to deal with such disputes. Whilst there is recourse under the Trusts of Land and Appointment of Trustees Act 1996 (known widely as ‘TOLATA’), the law is much less flexible than for married couples and there are fewer remedies available. Litigation under TOLATA can be costly, take a long time to conclude and have uncertain outcomes for cohabiting parties.
Is a cohabitation agreement legally binding?
A cohabitation agreement will be legally binding provided it is drafted and executed correctly. As your interests in relation to the agreement will be different, each party should seek independent legal advice.
Declaration of Trust
Another consideration for parties looking to purchase a home together is how the property should be held. Parties can elect to own a property as joint tenants (whereby upon the death of the other party the deceased’s interest will automatically pass to the surviving party) or as tenants in common (whereby upon the death of the other party, the deceased’s interest will pass in accordance with the terms of their Will and does not automatically pass to the surviving co-owner).
Where the parties are making unequal financial contributions to the purchase, they may wish to formally document that the property will be owned as tenants in common in unequal shares, reflective of the initial contributions they each make to ensure they receive an appropriate share at the point of sale or upon death.
At the time of purchasing a property, the parties will be asked to declare their intentions regarding ownership, and it is recommended that a Declaration of Trust is made at that point so there is no misunderstanding as to each party’s interests in the property and what should happen to their respective shares on sale or death.
The Declaration of Trust should deal with:
- the percentage of the property you will each own upon sale or death
- how much you will each contribute to the monthly mortgage payments and other property related outgoings
- what will happen if either party decides to sell their share.
If you sell the property, or if you separate, the Declaration of Trust will be looked at, to determine your entitlement to the sale proceeds from the property. By making an express declaration at the time of purchase, it should avoid any dispute regarding the property unless either party seeks to assert that there was a change in intentions after purchase whereby specialist advice would be required to determine if that would succeed.
Understandably, cohabiting couples often find it difficult to talk to their partners about cohabitation agreements. However, given the distinct lack of legal protection for cohabiting couples, it may be worth setting the awkwardness aside and starting the conversation with your partner. The certainty offered by a cohabitation agreement may save many more awkward conversations in the long term and could ensure you avoid lengthy and costly court proceedings in the event your relationship breaks down.
At GoodLaw, our family team specialise in the drafting of cohabitation agreements and will be able to advise you as to the most appropriate way to protect your position going forward. If you would like further advice or assistance, please get in touch with our family department on 01273 956 270 or email: firstname.lastname@example.org.