Cohabitees, joint mortgages and relationship breakdown: who is responsible for discharging the mortgage?
5 September 2024
When entering into a joint mortgage, it is likely that all co-owners will be “jointly and severally liable” for the mortgage debt. This means that, in the event of default, all co-owners are equally responsible for payment of the mortgage debt and the lender can choose to pursue you both together or each of you individually for the full amount owed. The same principle applies regardless of the number of co-owners.
As is sometimes the case, however, a cohabiting couple might agree between themselves that one of them will be solely responsible for discharging the joint mortgage, despite being named jointly on the mortgage deed. This might be for a variety of reasons. For example, one partner may have made a significant cash contribution to the deposit or agreed to take on different financial responsibilities, such as household bills or childcare.
Should the relationship break down and the property sold, such arrangements about mortgage responsibility are likely to be important when determining the division of the sale proceeds. Unfortunately, this can result in disagreement, particularly when the arrangement between the couple was not formally documented.
Documenting agreements about mortgage debt
Documenting your agreement on who is responsible for repaying the mortgage can help to reduce the risk of a dispute. The two most common ways of doing this are:
- Declaration of trust – this is a written document that each party signs, outlining the split in the equitable shares in the property. You can use a declaration of trust to set out your respective responsibilities regarding the mortgage, including how any outstanding mortgage balance should be allocated as between the co-owners upon the sale of the property. More information about declarations of trust can be found in our earlier article: I am a joint owner of a property and there is an express declaration of trust. Is it legally binding?
- Cohabitation Agreement – this is much broader agreement, which often covers not only the co-owners’ ownership and financial interests in a property but also day-to-day living arrangements and what will happen if the co-owners’ relationship breaks down. For more information about cohabitation agreements, see our previous article: Do you need a cohabitation agreement if you are unmarried but cohabiting?
Where there is no written agreement
Although it will be more difficult, you may still be able to evidence such an agreement even if this has not been formally documented in writing. This would typically involve consideration of complex principles of equity.
Birketts recently represented a client who was able to successfully argue at trial that his ex-partner was solely responsible for discharging the mortgage from her share of the sale proceeds, based on a collateral contract between them. Our client had contributed significantly more towards the deposit when purchasing a property in joint names with his then partner, on the understanding that the partner would be solely responsible for payment of the mortgage. Although the agreement was not recorded in writing, because of the evidence of the parties’ conduct that was put before the Judge, it was found that the parties had entered into a verbal contract that the partner was solely responsible for the mortgage. It was therefore ordered that, upon sale of the property, the mortgage should be redeemed from the ex-partner’s share of the sale proceeds only.
What if my co-owner stops paying the mortgage?
For more details on practical and legal considerations should your co-owner stop contributing to the mortgage, please see our articles on ‘Cohabitation and mortgage payments: what happens when someone stops paying?’ and ‘Occupation rent in the wake of Ali v Khatib & Ors [2022]’.
Birketts’ top tips
- Ensure agreements with your co-owner about your financial and legal interests in the property are documented in writing to avoid the risk of future disputes. It will often be appropriate for a declaration of trust and/or a Cohabitation Agreement to be drawn up at the time of purchasing a property in joint names.
- Regularly review any written agreements you enter into with your co-owner(s) to reflect any changes in circumstances, for example, prior to making any significant lump-sum payments towards the mortgage or carrying out extensive renovations.
- If a dispute does arise between you and your co-owner(s), be pro-active and seek independent legal advice as soon as possible. Involving a solicitor does not always mean going to court; your solicitor can help you seek an out-of-court agreement via alternative methods of dispute resolution, such as mediation.
For further assistance or advice on the topics covered in this article, please contact Lauren Peach or another member of the Home Ownership Disputes Team.
-
Lauren Peach
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at September 2024.