Joint ownership of property: A legal guide to setting up home with your partner
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When setting up home with your partner there are some crucial legal issues that everyone needs to consider.
If you’re buying your first home with your partner it’s a very exciting time. It’s so easy to focus on the excitement rather than the practicalities. It’s also very tempting to spend as little as you can on the mechanics of buying the property so that you can have as much spare cash to make the property your own. But sometimes ignoring the legal practicalities can have serious and damaging consequences.
If the intention is that you are going to have a financial interest in the property make sure your name is on the legal title. If for some reason that’s not possible then ensure that there’s a declaration of trust showing that the legal owner holds the property on trust for you both in agreed shares. If there’s nothing to say that you have an interest in the property and you fall out then the starting point is that you don’t own any part of it. If that happens and a dispute arises then there are various legal arguments that can be raised, but you will be at a disadvantage and your legal fees are likely to be far greater than if you had got it right in the first place.
If you’re planning to own the property jointly, think about how this will work. There are two distinct ways in which joint owners can own property and if you’re contributing unequal amounts to the purchase it’s really important that you make sure you’ve chosen the option that’s right for you.
Many joint owners own their property under a term called a joint tenancy. This means that there’s a presumption that you own the property equally. That may be fine, but if you’re putting in unequal amounts money it may not be. If your relationship ends and you’re looking to sell the property and you own it as joint tenants then you’re likely to have real difficulty in getting back anything more than half the proceeds, regardless of your contribution. If you own a property as joint tenants and one of you dies, then your share will pass automatically to the other owner, regardless of anything you have said in a will.
The alternative is to own the property as tenants in common. This means you can own it in unequal shares, although you’ll need to say what the shares are and ideally have a declaration of trust setting out how the proceeds are to be divided on a sale. It also means that if one owner dies their share will pass in accordance with their will (or intestacy) so it’s essential to ensure that you both have wills.
And a word of warning for parents. Lots of people getting their feet on the first rung of the property ladder do so with the assistance of the ‘bank of mum and dad’. Parents need to think about whether they expect to get that money back. Is it a gift or is it a loan? If it’s a gift, is it a gift to the couple or just to their child? If it’s a gift to one party only then it’s important that the property is owned unequally to ensure that the gift is reflected in the share held by their child. If the property’s owned equally then effectively it’s a gift to both, even if that’s not what they intended. If they see the money as a loan then they should ensure that they have a proper loan agreement and register a charge against the property to secure repayment of the loan. If there is a dispute and no loan agreement has been entered into it will be difficult to persuade a court that it was a loan and not a gift.
It may seem hard-nosed to have to talk about these things, but a sensible conversation which ensures everyone knows where they stand could save a great deal of heartache at a later date. Yes, drawing up declarations of trust and loan agreements will incur legal fees. But they will be a fraction of the fees incurred for contested court proceedings if a relationship breaks down and there’s a full-blown dispute.