Property Agreements
This article appeared in the May 2007 Issue of Homeplus.
Joint Names, but is it a joint sale?
Given the enormous increase in house prices over the past few years, coupled with the reduction in the number of people getting married, more purchases are proceeding in the joint names of unmarried couples.
Title is often taken in joint names of the parties with no provision for how the property is to be dealt with in the event of separation. Here Karen Lang, considers the realities!
“When purchasing, it is not unusual for the couple to contribute unequally towards the deposit, though they may contribute equally to mortgage repayments. Alternatively one party may make greater mortgage repayments than the other. Unless there is an agreement in place to the contrary or specific instructions are given to the effect that the title is not to be held equally between the parties but is to be held in shares reflecting their contribution made, then if the parties split and the property is sold, each will be entitled to a one half share of the profit.
There are many ways to calculate how the sale proceeds should be divided. Apart from the obvious question of interest, there is also the question of how the increase in the value of the property, which is likely to be larger, is divided. There is an argument that the party who contributes the vast majority to the deposit should have the same proportion of the free equity on the sale but there is no right or wrong way to divide the proceeds.
Another thing to consider, particularly when unmarried, is whether or not the parties should effect Wills at the time of their purchase. Where couples are married, even if they do not have Wills, intestate provisions are likely to achieve their intention in that the property will pass to the surviving spouse. That is often also the intention of unmarried couples but may not happen without Wills. Even if they do not wish to leave their respective shares to each other, they may wish to make provision for the property not to be sold for a period to allow the other party to find alternative accommodation.
Unmarried couples should also be aware of the recent changes in the law under the Family Law (Scotland) Act 2006.
Under the Act, surviving co-habitants can now make a claim on the deceased’s estate provided certain criteria are met.
A successful claim can result in a capital payment or a property transfer order but claims may be restricted to the amount equivalent to that which would have been received through legal rights and prior rights, had the survivor been a spouse. If it is the intention of co-habitees when entering into co-habitation that the 2006 Act is not to apply, then this can be incorporated in a co-habitation or property agreement. Effectively it is possible to “contract out” of the terms of the Act. If no mention is made of the Act however in an agreement, then a co-habitee in the event of their partner’s death may make a claim on the estate. Clearly this may not be the intention of parties and pre-emptive measures require to be taken to avoid this situation.
A co-habitation or property agreement can deal with as little or as much as parties entering into it wish. It can be as complicated or as simple as required.
It is still the exception rather than the rule for couples to sign such an agreement. People are realising to their cost, however that if they do not take the trouble to document their arrangement at the time of purchase, they are likely to live to regret it.”
Article compiled by Karen Lang
Posted by Sharon Clift on May 03, 2007
