Should I get a Cohabitation Agreement when buying a house?

Embarking on the journey of homeownership with your partner is an exciting leap towards building a life together. But before you pick out paint colours and plan housewarming parties, there’s an essential item to tick off your checklist: a cohabitation agreement.

Think of it as a safety net for your shared investment and relationship harmony.

In this article, we’ll dive into why securing a cohabitation agreement is a smart move for any unmarried couple taking the plunge into property purchase, ensuring that your dream home doesn’t turn into a legal nightmare if the unexpected happens.

What exactly is a cohabitation agreement?

A cohabitation agreement is a type of legal contract between unmarried couples who are living together. It allows them to outline their financial arrangements and the division of their assets while they cohabit.

When buying a property with a friend or partner, you must understand what that means in law.

For example, should your relationship end and you separate, who is entitled to what, and what happens to the property if one party wants to sell but the other doesn’t?

Although this article focuses on how a cohabitation agreement can be used when buying a property as an unmarried couple, a cohabitation agreement can be useful in many other scenarios, for example, if the property is rented, or:

• owned solely by one person
• owned by one or more cohabitees together
• owned jointly by cohabitees in equal or unequal shares

Why do unmarried couples need a cohabitation agreement when buying a house?

When unmarried couples take the step to buy a property together, they may overlook the legal protections that marriage inherently provides concerning property ownership and rights.

It’s imperative to know the rights of cohabitees when buying a house with a partner or friend.

A cohabitation agreement becomes an essential tool in this context as it clarifies the intentions and responsibilities of each party.

It serves as a safeguard, detailing how assets should be shared and protecting both individuals should the relationship dissolve or circumstances change.

A cohabitation agreement can cover various aspects of a couple’s financial arrangements, from contributions towards the mortgage to how utilities and maintenance should be handled.

Without the legal framework of marriage, couples without such an agreement may find themselves vulnerable to disputes or financial hardship in the event of a separation. They offer a pragmatic approach to partnership, ensuring that both parties have a clear understanding of where they stand.

Cohabitation lawyers often emphasise the importance of these agreements, as the number of cohabiting couples continues to rise in the UK.

Given that these couples do not have the same rights as their married counterparts, the relevance and utility of cohabitation agreements are becoming increasingly prominent.

If you already own a house or have a mortgage and your partner is moving in, you need to read this article instead – Moving In With a Partner Who Owns a House – What Happens?

What happens if your situation changes or there is a property dispute?

Hopefully, by now, you know that there is no such thing as common law partners.

Buying a property with a friend or a romantic partner can offer many benefits, such as shared financial responsibility and the ability to enter the property market sooner.

However, various problems can arise from such an arrangement, including:

1. Disagreement on Property Decisions: Disputes may occur over property-related decisions, such as maintenance, improvements, or when to sell. Without a clear agreement, these disagreements can become problematic.
2. Unequal Contributions: If one party contributes more to the down payment, mortgage payments, or upkeep, this can lead to tension and disputes, especially if there’s no legal agreement detailing how expenses are shared or how proceeds will be divided upon sale.
3. Breakdown of the Relationship: If the personal relationship sours, it can complicate the co-ownership arrangement. Emotions may interfere with rational decision-making regarding the property.
4. Financial Difficulties: If one owner experiences financial problems, it can affect their ability to contribute to mortgage payments and other expenses, potentially placing the burden on the other owner and risking default on the mortgage.
5. Change in Circumstances: Life changes such as job relocation, marriage, or the desire to purchase a separate property can complicate the co-ownership situation if both parties do not agree on how to proceed.
6. Death of One Owner: If one owner dies without a will or clear instructions, their share of the property may pass to their heirs, who may not want to keep the arrangement or may be unknown to the surviving owner.
7. Mortgage Liability: Both parties are typically jointly and severally liable for the mortgage, meaning that if one party cannot pay, the other is liable for the full amount. This can affect credit ratings and financial planning.
8. Selling the Property: If one owner wants to sell and the other doesn’t, it can lead to a stalemate or legal action to force a sale under the Trusts of Land and Appointment of Trustees Act (TOLATA).

Understanding Cohabitation Agreements When Buying a House

In the context of purchasing a house in the UK, a cohabitation agreement is a crucial document for unmarried couples looking to define their financial relationship.

the purpose of this legal contract is to provide clarity and outline arrangements for finances, property, and children. It covers scenarios such as separation, illness, or death.

These agreements can be forged at any time, regardless of the duration of the cohabitation period.

They typically detail what happens to each person’s assets and income during the relationship or if the relationship ends.

Purchasing Property Jointly

When buying a house together in the UK, couples have to decide whether they will own the property as joint tenants or tenants in common.

Each choice has significant implications for ownership rights and the distribution of the property should the relationship end or one of the parties pass away.

Joint Tenants vs Tenants in Common

Joint tenants is an arrangement where each party has equal rights to the entire property. In this co-ownership, upon the death of one party, their interest automatically passes to the surviving joint tenant(s) by the right of survivorship.

This concept is known as jure uxoris, making it common among married couples or those in a civil partnership.

On the other hand, tenants in common own separate shares of the property, which may be equal or unequal. This subdivision allows individuals to pass on their share to beneficiaries of their choosing when they die, rather than the co-owner.

Establishing a cohabitation agreement can help articulate each party’s share and anticipate provisions for circumstances such as separation or death.

Mortgage Considerations

Considerations around a mortgage when purchasing property jointly are critical, as they affect ownership rights and financial responsibilities.

When entering into a mortgage, both parties need to understand that they are jointly and severally liable for the mortgage repayments.

This means that if one party fails to contribute, the other could be liable for the entire mortgage.

Cohabitation agreements can specify how mortgage responsibilities, such as repayments and deposits, are divided. They can also provide a strategy for dealing with the mortgage should the relationship end or if one party wishes to sell their share.

It is also advisable to consult with a financial advisor or solicitor to understand all implications related to joint mortgages and property ownership.

What are the key components of a Cohabitation Agreement?

A Cohabitation Agreement outlines clear expectations and arrangements for various aspects of a couple’s life together.

Key components include how they’ll manage financial contributions, share debt responsibility, and distribute property in the event of a separation.

Financial Contributions

In a cohabitation agreement, it’s important to detail each party’s financial contributions to household expenses.

Couples should clearly state how much each individual will contribute to the mortgage, bills, and other shared costs, and whether these contributions grant any additional entitlement to property ownership.

Debt Responsibility

The agreement should outline responsibility for debts incurred during cohabitation, distinguishing between joint debt and individual debt.

Clarification on how each party will address debt repayment will serve to prevent misunderstandings should the relationship dissolve.

Property Distribution on Separation

Upon separation, the distribution of property needs to be agreed upon.

The agreement should specify what happens to the home they have cohabitated in, considering various scenarios such as one party wishing to buy the other out, or if the property should be sold with an outlined method for how proceeds will be divided.

Affordable cohabitation agreement solicitors

While love and trust form the foundation of any solid relationship, a cohabitation agreement provides the bricks and mortar that protects your joint home from the storms of life’s uncertainties.

By proactively addressing potential financial and legal issues head-on, couples can fortify their future, regardless of what twists and turns lie ahead.

Remember, the true value of a home isn’t just in its market price, but in the peace of mind that comes from knowing your investment and your partnership are both secure.

As you turn the key to your new home, let a well-crafted cohabitation agreement be the blueprint that guides you toward a stable and harmonious cohabitation.