Do you need a cohabitation agreement if you are unmarried but cohabiting?

“Cohabitation” is a commonly used term defined as “the state of fact of living or existing at the same time or in the same place”. A common example of cohabitation is a couple who are not married but who live together on a long-term basis.

The number of unmarried cohabitating couples has been steadily rising since the 1990s, but unfortunately, the legal rights benefitting these couples have not progressed at a comparable rate.  

Perhaps due to the confusion of a non-existent “common law husband and wife” and “domestic partnerships”, many people are not actually aware that unmarried couples have extremely limited legal rights in contrast to married couples, no matter how long they have been together or whether they have children.

What would happen to the house if we separate?

If you rent your home and you both appear on the tenancy agreement, you remain jointly and severally liable for the rental payments until such time as the tenancy agreement ends or your landlord agrees to remove one party from the tenancy agreement.

If your home is jointly owned (i.e. both of your names appear on the legal title), in accordance with the case of Stack v Dowden (2007), it is assumed at law that each party has an equal (50/50) interest in the equity in the property, unless there is an agreement or declaration of trust defining the parties’ interests as being otherwise. Such a declaration may be contained in the transfer form signed at the point of purchasing the property, or otherwise set out in an entirely separate agreement. If there is such a declaration, the parties’ shares will be governed by the declaration, and any sale proceeds will be divided accordingly. (Declarations of trust can be set aside in instances of fraud, duress, undue influence or mistake, but these scenarios are fairly uncommon.)

If the property is owned in the sole name of one party, they will retain legal ownership on separation. The other party may be able to claim a beneficial interest in the property under the Trusts of Land and Appointment of Trustees Act 1996 (TOLATA). This is a civil claim as opposed to a claim in the family courts.

To successfully bring a claim in TOLATA, it must be shown that there was an agreement or common intention that the non-owning party would be entitled to a share in the property. This may be shown through an express written agreement/declaration of trust or, in absence of such an agreement (and more usually), a beneficial interest may be evidenced based on the parties’ conduct. In this case, the court will look back to the point of purchase and consider various factors, including:

• What discussions took place about how the property would be owned;
• Whether there is any written evidence (emails, letters, text messages) of the parties’ intentions at the point of purchase;
• What financial contributions have been made by each party (including payment of the deposit and subsequent mortgage payments), as was considered in Oxley v Hiscock (2004).

If a claim under TOLATA is successful, the Court will make a declaration as to the quantum of their interest, which could in turn provide the Claimant with a legal right to live in the property, have a share of the income in the property if it is rented, or have a share in the proceeds of sale if the property is sold.

TOLATA claims are complex, time consuming and costly, so use of a legally binding agreement that clearly details the extent of each party’s obligations and entitlements can help avoid litigation if you decide to separate down the line.

So how exactly would a cohabitation agreement help?

A cohabitation agreement is a legally binding contract which sets out various arrangements and intentions in the event that the relationship ends, including if one party dies.

The agreement may cover topics such as:

• What your respective shares are in the property you live in (and indeed, any other property owned by either of you);
• How you will pay the mortgage/rent/utilities/other outgoings, for example how much you will each contribute;
• If either party’s financial circumstances change (for example, if one party loses their job or becomes the primary child carer), what impact (if any) that is to have on ownership;
• If one party wants to ‘buy-out’ the other’s interest in the property, how will that interest be valued?
• In the event that one party vacates the family home, what should be the position in relation to the ongoing responsibility for household liabilities? Should the party remaining in occupation pay an occupation rent to the other?
• Other financial details, such as what should happen to your joint accounts/savings/pensions/life insurance in the event of separation;
• How the ownership of cars is to be determined in the event of separation.

Once you have an agreement in place, it is important to update your agreement if your circumstances change.  

To avoid any later argument about whether the agreement is legally binding, it is advisable for both parties to seek independent legal advice before signing the document.

What is the difference between a cohabitation agreement and a declaration of trust?

A declaration of trust details the parties’ respective shares in the property and how any future sale proceeds should be divided. A declaration of trust can be as simple as ticking a box (for example, the ‘joint tenants’ box) in the transfer form at the point of purchase.  On the other hand, a cohabitation agreement is a much more comprehensive document, covering not only the above but also the minutiae of living together more generally.  It can set out various day-to-day matters in respect of the relationship, such as who has responsibility for household outgoings, how the cost of repairs or improvements will be dealt with, how the parties will run their bank accounts and how joint credit cards will be used, who should occupy the property in the event of separation and so on.

Will cohabiting couples have more rights in the future?

The Cohabitation Rights Bill was produced with a view to provide additional protection for cohabiting unmarried couples, making their legal rights more comparable to those of married couples.

The Bill is not yet law, and is still in the early stages of approval.  Having had its ‘first reading’ in the House of Lords in 2017, it is still awaiting its ‘second reading’.

While the Bill is promising for cohabitating couples, it is likely to be some time before any practical changes are implemented.

In the meantime, it remains prudent for cohabiting couples to protect their interests by entering into a cohabitation agreement or a declaration of trust.

For further assistance or advice on property disputes, please contact Laura Tanguay on [email protected] or 01473 299188 or Lucy Grunwell on [email protected] or 01473 921761.