Cohabiting Families – Property ownership

Cohabiting Families – Property ownership

This guide sets out the legal issues that cohabiting couples should be aware of when they choose to live together and/or buy property together.

Options for owning property in joint names

The purchase of property is often one of the largest purchases that many couples make and it is, therefore, critical that couples have open discussions about how they wish to own the land/building before they complete the purchase. 

When cohabiting couples purchase property in their joint names the conveyancer must select one of 3 options:-

1. ‘they are to hold the property on trust for themselves as joint tenants’

2. ‘they are to hold the property on trust for themselves as tenants in common in equal shares’

3. ‘they are to hold the property on trust:’

This will be recorded by HM Land Registry and will stand as a record of the couples intention as to how they intended to own the property at the time of purchase.

Option 1: Joint tenants 

Joint tenants have an indivisible share in the property and, therefore, all owners are equally entitled to the whole property. Critically, due to the nature of the ownership, if one of the owners dies their interest in the property will transfer to the surviving owner/s automatically (this is known as the Right to Survivorship).

Ownership as joint tenants is the generally the default position adopted by conveyancers and it is critical that couples inform their conveyancer if they do not want to own the property as joint tenants. This is particularly relevant where the parties have made unequal contributions towards the property or they wish, on death, for their shares to eg pass to their children from a prior relationship. 

Option 2: On trust for themselves as tenants in common in equal shares

Cohabitees own the property in separate and distinct, but equal, shares. 

Unlike Joint Tenants, the owners of the property would not have Right to Survivorship and, in the event of either owner’s death, the property would transfer under the rules of intestacy (or the provisions of any Will). 

Option 3: On trust…

Cohabitees own the property but hold it on trust for themselves in unequal shares, or for a third party. 

There is an opportunity in the Transfer Deed (known as a TR1) for owners to set out details of their respective interests in the property, including how any equity will be distributed in the event of sale, or the death of one, or both, of the owners. 

Do I need a separate Declaration of Trust

Prospective purchasers can set out the terms of the trust within the TR1. However, save in the event of a joint tenancy or a simple tenancy in common in equal shares, it is usually sensible to have the detail of any tenancy in common set out in a Declaration of Trust Deed. 

The Declaration of Trust can be tailored to the co-owners needs and detail their respective interests, how the mortgage will be paid and how any equity will be distributed in the event of sale, or the death of one/both, of the owners. 

The preparation of a clear Declaration of Trust can help to avoid any disputes between couples on the breakdown of a relationship, or sale of property, as it clearly outlines their respective intentions as to how the equity should be divided between them. 

Additionally, unlike the TR1, the content of the Declaration of Trust is not available for public inspection and the details of the trust will remain confidential. 

Cohabitation Agreements

The content of a Declaration of Trust is usually limited to the expression of the owners’ respective beneficial interests in the property. Couples may want to set out, in writing, their agreement on a wider range of issues such as:

1. How the mortgage and household expenses will be paid, and by whom;
2. How and when the property is to be sold;
3. How property will be owned in the event of a breakdown of the relationship and, where the parties live apart, who will live in the property;
4. Financial support to be made during, and after, the relationship; and/or
5. Arrangements for the children. 

It is not possible to set out the above in a single Declaration of Trust. Therefore, where a couple wants to detail their financial and other arrangements whilst they cohabit it is beneficial to set out the arrangement in a Cohabitation Agreement. This is a Deed can be prepared by Solicitors and executed as a Deed recording the terms. 

The Cohabitation Agreement can contain a Declaration of Trust, setting out the couples beneficial interest in the property, if any. Alternatively co-owners can enter into a separate Declaration of Trust and Cohabitation Agreement; although, in this case it is critical that extra care is taken to ensure that the documents do not conflict. 

A Cohabitation Agreement is particularly useful where one party owns a property but wishes to protect this when inviting someone else to live with them.