Unmarried Couples Living Together Need A Cohabitation Agreement To Protect Themselves

17th May 2021

When two people buy a property, a trust is automatically created without them having to do anything. The legal owners hold the property on trust for themselves, whether in equal or unequal shares. The people who stand to benefit from the trust are known as the beneficiaries and have the right to occupy the property and receive the net sale proceeds when the property is sold

This is the reason your property solicitor will ask whether you wish to hold the property as 'tenants in common' or 'joint tenants' A joint tenancy means that the beneficiaries own the property in equal shares, whereas a 'tenancy in common' can be in either equal or unequal shares If you do not wish to own the property in equal shares, you will need to choose a 'tenancy in common’

Usually, the shares in the property are declared at the time you buy the property and are set out in the transfer form (form TR1) that you sign and creates an ‘express declaration of trust’ which is invariably binding. Subsequent changes in your relationship, such as who pays for what, are very unlikely to change your respective shares in the property, as previously declared in the transfer form.  

Aside from an express trust there are other types of property trusts

A 'common intention constructive trust’ or a “resulting trust” can be created without the need to sign anything. It is created where both parties intended to share the property, but they did not document this formally and/or contribute financially towards the property

If you already own a property and your partner is moving in or you live in a property owned by someone else you might be a trustee and/or a beneficiary of that property because a property trust can be created informally as a result of the actions of the people involved, for example, things said between them or their financial conduct, such as making financial contributions towards the purchase price or mortgage

You can specify what the shares are in an express declaration of trust, either at the time of purchasing the property (for example, as part of the transfer form or in a standalone declaration) or at any time thereafter. If you did not do this and the shares in the property are unclear and disputed, any of the legal or beneficial owners can apply to the court for a declaration as to what the shares in the property are It is possible to change the shares in the property trust.

If you created an express declaration of trust when you purchased the property, stating that you held the property as joint tenants (in equal shares), but you later wish to change the shares so that you own the property unequally, this can be achieved by severing the joint tenancy.

It is always prudent to revisit the shares when significant changes arise in your circumstances, for instance, if one of you inherits some money and decides to use this to pay off the mortgage. The most sensible way to achieve this is to enter into a deed, which you will both need to sign in the presence of an independent witness, to record your revised shares

A properly drafted Cohabitation Agreement should provide for changes in circumstances avoiding the inconvenience and expense of having to revise an existing express property trust as your lives evolve together and changes happen

The danger to unmarried cohabiting couples is that property trusts can arise informally based on conversations or conduct such as financial contributions towards the purchase price, mortgage repayments or works to the property

Claims based on informal trusts such as these can be costly to litigate. If you own a property and you have started to share occupation with a new partner, you may wish to ask them to enter into a Cohabitation Agreement confirming they do not have a beneficial interest in the property and do not intend to acquire any such interest, notwithstanding that they may be contributing financially towards property related expenditure. While not watertight, such evidence would be extremely helpful later, were a claim against your property to be made should your relationship subsequently breakdown

If you would like to discuss your situation or would like help with preparing a Cohabitation Agreement then, please get in touch and book a chat with me

Sarah

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Back Contact Sarah