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Navigating the property co-ownership minefield

An entrepreneurial couple in London have launched an online "matchmaking" property investment service for potential purchasers.

With property prices increasing faster than inflation and salary rises, not only in the capital, but nationwide, many people are left with little alternative than to find someone who will help to fund their purchase. For many, this will be the bank of mum and dad, but increasingly, groups of friends are now buying together.  

Although the Government is trying to ease the first time buyer crisis, for example the Help to Buy ISA will launch in the autumn, many feel that this does not go far enough to resolve the issue. It seems that many are now going to the extreme level of finding an anonymous investor in order to get a foot on the ever-steeper property ladder. This includes resorting to being matched with other would-be owners through websites. 

Whether buying with a new partner, a friend or a completely unconnected party, many people are unaware of the legal implications that co-purchasing a property can have. It is all too easy to get caught up in the excitement of buying a new house, especially if you have been disappointed in the past, pipped to the post by other would-be buyers, or have finally found your "dream home". 

But it is vital to give proper consideration to how the property will be purchased and provision for what will happen to the property. It's also important to think about your respective ownership in the future especially if your arrangement comes to an end.  

Legal considerations

If you are considering purchasing with another person, whether it is your partner, parent, a friend or someone else, it is important to ensure that you have proper legal advice about the ownership of the property.  

There are different ways of owning property. This will determine the size of each owner's share in the equity and will affect the way that joint owners can act in respect of the property, also what happens to each owner's share on death. 

Up to four people can legally be registered as co-owners of a property. However, many lenders will only offer a mortgage to up to two people. So if you are a group of friends buying together or a couple purchasing with the help of a third party, it is important to consider what funding options are available.

Co-ownership of property can also affect your credit rating, so it is critical to go into your purchase with your eyes fully open, whatever your relationship with your co-purchaser. This can be the case whether living together at the same address or tied to a mortgage, but living elsewhere.

It is also important to think about other financial considerations, such as:

  • who will repay the mortgage;
  • how the outgoings and any work to the property will be funded; and
  • what will happen if one co-owner fails to pay, wants to sell or re-mortgage their share of the property or cause a debt to be registered against the property. 

Consideration should also be given to what happens if there is a falling out. Legally, joint owners have a right to stay in their property, unless a court decides otherwise.

Although co-ownership of property can be a risky business, careful pre-planning can minimise those risks. Reaching an agreement with your co-purchaser(s) about all of these different considerations before you move in together is strongly recommended, and recording your agreement in a legal document, such as a declaration of trust and/or living together agreement, is especially important. 

If proper provision is not made for the future and you fall out over the ownership of the property and the contributions different people have made, resolving the problem, whether through the courts or otherwise can be messy, expensive and time-consuming.

Many unmarried couples presume that they will be protected and have claims available to them, as "common law spouses" if they do separate. But this is a myth and unfortunately many people do not realise this until they separate from their partner. 

Presently the law works very differently for couples who are married or in a civil partnership. Those provisions do not translate to unmarried couples, regardless of the length of the relationship. It is therefore important that you fully understand your legal rights and responsibilities before taking the next step towards purchasing a property as a couple.   

At TLT, the experts in our Private Business Group and Residential Conveyancing teams will work together to prepare a bespoke agreement which suits your circumstances, whether you are buying with a partner, a friend or a complete stranger. Please contact Sarah Green for more information.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at April 2015. Specific advice should be sought for specific cases; we cannot be held responsible for any action (or decision not to take action) made in reliance upon the content of this publication.

TLT LLP is a limited liability partnership registered in England & Wales number OC 308658 whose registered office is at One Redcliff Street, Bristol BS1 6TP England. A list of members (all of whom are solicitors or lawyers) can be inspected by visiting the People section of this website. TLT LLP is authorised and regulated by the Solicitors Regulation Authority under number 406297. 

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