When Rishi Sunak first revealed the stamp duty holiday back in July 2020 it was clearly designed to prop up the property market during the pandemic. Fast forward to the end of September 2021 and, after extensions and a gradual phasing out, the last remnant of the tax break is now expiring. It is clear that property transactions surged, prices went up and the ‘race for space’ saw many rushing to purchase their first, or a bigger, home.
There was something of a frenzy in the housing market and it seemed that for some, particularly first time buyers, the saving of the stamp duty created a genuine ‘now or never’ moment for them. It was a financial opportunity that was too good to miss. That fear of missing out was amplified by the fact that many transactions had to be pushed through rapidly to meet the deadlines, in what most conveyancers have described as the busiest period in history, as well as the practical challenges in sourcing removal services.
In the race to take advantage of the stamp duty holiday, it is possible that the significance of property co-ownership is only now being properly considered. For those couples that are not married and who purchased jointly or who have started cohabiting for the first time, it is vitally important to consider the legal impact of cohabiting and what happens if the relationship breaks down.
The myth of the common law marriage
Statistics show that as many as two-thirds of cohabitants believe that unmarried couples share the same rights as a legally married couple. Unfortunately, this is not true. There is no such thing as a common law marriage and the legal position in the event of a relationship breakdown is significantly different to that of a married couple. There are no automatic claims that either party can make. The law acts only to declare existing interests in property or other finances (as opposed to redistribute the same as it can on divorce).
What happens if the relationship fails?
It is easy for there to be disputes at a time when a relationship has broken down. There may be differing views over who has contributed what, who owns what or what should happen to a property or other asset. Any disputes between unmarried cohabitants are determined in accordance with the law of trusts, property law or contract law.
The main issue is normally related to the ownership of a home, which falls under the legislation set out in the Trusts of Land and Appointment of Trustees Act 1996. This, together with the case law that has built up around it, is complicated law. Broadly, the starting point with any dispute will be to explore whether there is any express declaration of what has been agreed in terms of ownership and occupation. In the absence of clear legal documentation to that effect, it is easy for disputes to become protracted, complex and expensive.
To remove the potential for this later dispute, and the resulting stress and confusion, it is essential to ensure that agreements are reached, clearly recorded and, when appropriate, updated.
Declaration of trust
A declaration of trust is the first tool that can be used to try to avoid the risk of a later dispute. Most unmarried couples who purchase a property jointly will do so as tenants in common, which is when a declaration of trust can be used. It sets out the respective share of the equity in the property each party will hold, which can be equal or unequal. This will be binding if properly executed as a legal deed, so it can at least resolve a dispute in relation to the shares of the property. However, there are still many other areas for dispute which a declaration of trust will not cover so it is rarely sufficient.
A cohabitation agreement is often a better tool for unmarried couples who are living together and can be used irrespective of whether they own a property jointly or whether one is the sole owner. The agreement can incorporate a declaration of trust, but in addition can cover a much wider range of issues that may arise in a relationship breakdown scenario, including:
What will happen if one party wishes to realise their share in the property (e.g. will it be sold or will there be an option for one to buy out the other) and the mechanism for calculating value, as well as timeframes for implementing this
How the property is to be used, including who can live there and the presence of visitors and guests at the property
How payments of any mortgage will be structured and whether any payments made will alter the shares each party has in the property
Who will be responsible for the maintenance and upkeep of the property, including whether improvements must be mutually agreed
Who will pay to insure the property, for any ground rent or service charges and for any other outgoings
Prohibitions against mortgaging or otherwise dealing with each party’s share in the property
Detail around what will happen to the property in the event of the death of one of the co-owners (where the interest of the deceased does not pass to the survivor under the deceased owner’s Will)
What will happen to the contents of the property and any other possessions
How any joint bank accounts or other joint finances will operate
What arrangements, including financial, will be put in place in respect of any children
Planning to fail?
Understandably, many people do not like to discuss issues regarding a relationship breakdown, particularly when a relationship may be fairly new. However, it is far better to have these agreements in place from the outset, to not only address the issues if the relationship breaks down but also to ensure all parties understand their rights and obligations.
Statistics show that after just five years of moving in together, only 10% of couples will still be living together in an unmarried relationship. Approximately half of them will have married and the remaining 40% will have separated.
Interestingly, saving time, stress and expense in the event of a relationship breakdown in the future are not the only benefits of a cohabitation agreement. Many people report that by working through the issues in a cohabitation agreement in a formal way it removes uncertainty and the potential for conflict within the relationship, which in turn strengthens the relationship from the outset.
At Boyes Turner, we can draft the appropriate agreement for you and your circumstances. We will ensure you have the advice you need on all the issues to be considered and understand the options for dealing with matters. We are mindful that these agreements are entered into with hope they are never called upon, so while we would always advise that it is prudent to plan for the worst, we will work in a manner that recognises the need to protect what can often be a fledgling relationship.
Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.