Buying your first property together is an important step for any couple, and while choosing the correct ownership structure for your dream home may seem like a technical task, the wrong choice now could cause you serious legal problems. and financial in the future.
Last year saw a huge 60 percent increase in the number of cohabiting couples buying property together, according to a recent survey of mortgage applicants. This increase supports the continuing trend of friends, family and cohabiting couples pooling their deposits and income to get a foothold on the property ladder.
Unmarried or PACS couples have different options for structuring their legal ownership of property, while protecting their legal and financial interests. Here’s all you need to know …
Co-ownership of real estate: what are the advantages?
The most obvious benefit of co-ownership is that it gives people the ability to combine their savings towards a larger deposit and combine their income to qualify for a larger deposit. mortgage. Joint buyers can afford a property that is larger, more attractive or in a better location.
Co-ownership can also be structured to ensure that each owner’s contribution to the deposit or mortgage is reflected in the ownership share, or to ensure that owners are protected by a âright of survivorshipâ if one of the owners dies.
The exact legal protections you and your co-owners enjoy will depend on whether you jointly own as common tenants or co-owners.
Joint tenor or common lease?
When you buy a property with one or more other people, your notary will ask you if you want to buy the property in co-ownership or in co-ownership. The legal implications of this choice will have a major effect on the financial rights and interests of each owner regarding the property.
You and your co-owners should discuss your plans and expectations with your lawyer, so that he can advise you on the form of ownership that best suits your needs. Your lawyer may also recommend that you draft a legal agreement to cover specific points.
If you are buying with your partner, joint ownership may be the best option. Joint ownership ensures that in the event of the death of one owner, ownership of the property automatically passes to the other owner. This is called the right of survivorship. This process also avoids probate and inheritance tax issues.
The co-owners all own the property together, rather than owning individual shares. Although this approach is simpler initially, joint ownership does not reflect any difference in the financial contributions made by different owners. All roommates have the same rights to the property, even if they never contribute to the mortgage payments, invoices or maintenance.
â¢ Joint rental
If you and your partner want to maintain your financial independence, renting together will usually give you more flexibility. The common tenants each own a specific share of the property. Ownership shares can be split evenly or divided, for example, to reflect different levels of financial contribution to the mortgage or deposit.
Unlike joint tenants, joint tenants do not have a right of survivorship. This means that if one of the owners dies, their share in the property will not automatically be transferred to the other owners. The deceased’s share can be inherited by someone who is not currently the owner, and there may be probate and tax issues to resolve.
Setting up a joint tenancy may involve a discussion between owners about who gets what percentage of the property. Agreeing on this up front, however, can help avoid problems in the future.
Is co-ownership riskier?
For many first-time buyers, co-ownership is the most convenient way to access property. As noted above, there are other benefits for cohabiting couples jointly owning property.
The biggest risk with co-ownership is uncertainty. If an owner wishes to sell their share (because the relationship ends, for example), there could be disputes over ownership shares, the property value, and who can stay on the property. These problems can create additional and preventable suffering and costs.
Fortunately, you can answer these questions when you buy property. You can protect the legal rights and financial interests of all co-owners from the start with a legally binding trust deed or cohabitation agreement.
Protect your legal and financial interests in the co-ownership
Depending on your situation and future plans, your property transfer lawyer may recommend that you draft a legal agreement to protect the interests of the parties involved in the purchase of the property. This agreement will help clarify the rights and obligations of owners, including the sharing of ownership shares.
A trust deed can also be used to protect the interests of someone who contributes to the purchase of the property but who will not be listed as an owner, such as a family member loaning money for a deposit.
Do we need a trust deed?
Sometimes referred to as a âdeclaration of trust,â a trust deed is a legally binding document that can be used to answer a wide range of questions regarding the ownership of a property. Regardless of what the future holds, this agreement will ensure that clear rights, obligations and processes are in place to protect the interests of all owners.
A trust deed can be used to resolve issues such as:
Who owns which share
What happens when an owner wants to sell
How the property (or owner’s share) is valued
Who gets what when the property is sold
What happens when an owner dies
Who can inherit from an owner
Who is responsible for what percentage of mortgage payments
What happens if an owner cannot maintain their contribution
While trust deeds are usually (even necessary) documents to clarify ownership issues, if you are buying with your partner and are not in a civil or married partnership, a cohabitation agreement may also be suitable.
Do we need a cohabitation agreement?
Sometimes referred to as a âLiving Together Agreementâ or âNo-nupâ, a cohabitation agreement can cover the same issues as a trust deed and can also cover broader issues regarding cohabitation, such as:
Who pays the bills, repairs and maintenance costs of the property
How bank accounts and money are managed
How other major assets like cars are managed
How debts are settled when a relationship breaks down
Who is responsible for pets if the relationship ends
While discussing some of these issues may seem uncomfortable or even pessimistic, a cohabitation agreement offers both parties the opportunity to respect and formally recognize each other’s contributions. It is also much easier to discuss these issues with a clear head when the relationship is happy and stable, âsays Chris Salmon, a specialist in real estate law. Quittance.fr.
“This proactive approach will help avoid unnecessary arguments, anger and even legal action in the event of an unfortunate break-up.”
To be legally binding, a cohabitation agreement must be signed as a deed. This means that you may need the help of a lawyer to make sure that the document is certified and formally executed correctly.
What to check before buying a property with friends or family
Much of the advice above also applies to anyone buying with friends or family. Most people who buy with friends will expect someone to want to sell at some point, and everyone is unlikely to want to sell at the same time. Likewise, if you are buying a property with parents, children, or siblings, it is likely that different owners will have different plans for their share of the property.
Either way, you should have an open conversation with your co-owners to clarify each other’s plans and expectations regarding their property, financial contributions, and concerns. Your lawyer can work with you to define these points in a formal agreement and identify any points of potential conflict or confusion.
If you intend to put in place a trust deed or cohabitation agreement when you buy a property, you should discuss your plans with your lawyer as soon as possible to avoid the process from delaying. completion. There is no reason why you cannot start the drafting process before you have even found a property.
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