A man is enjoying his relationship (let’s call him Mark) with a woman, (let’s call her Wanda). They live separately but in these times of recession they are practical as well as in love.
They decide they want to buy a home together. It’s cheaper to live together and they are sure they can make it work. They don’t have much money but Mark’s mum says she will lend them enough funds for a deposit. This money is going to be enough, so they find out for a reasonable lease on a two bedroom flat in the area of London where they are currently renting. Two lots of rent saved and one mortgage payment each month; it sounds great doesn’t it?
When they visit an independent financial advisor they are shocked to find out and Wanda is especially embarrassed that she has a really bad credit record and so she can’t go on the mortgage.
The ‘deal’ which was a really good interest rate from their lender, now can't go ahead unless Mark’s mum or someone else will guarantee the mortgage as he doesn’t earn enough to take it out on his own.
Wanda says she will work to get her credit rating up and should then in the future be able to release Mark’s mum. However, Mark’s mum doesn’t have too much spare cash and isn’t keen to be their guarantor. However his godfather is reasonably well heeled and has said he can have an advance on his inheritance, a sum of £55,000. This, with the deposit, will then allow them to buy the property with a much smaller mortgage and they can both go on it; bearing in mind the ratio of equity to property is much higher.
Mark is concerned however that he is putting up virtually all the cash and all Wanda can scrape together is a few thousand her dad is going to give her. Most of this will have to cover removal fees and Solicitor’s fees as well as some remedial work necessary to be carried out before they move in.
Someone at work says to Mark ‘How are you and Wanda buying your property, Tenants in Common or as Joint Tenants’? He replies ‘I have no idea, I suppose my Solicitor is going to sort all that out’.
The friend says, ‘I wouldn’t bank on it. Unless you particularly say so, they may just assume its half and half and you are buying jointly which means if you die your half of the property goes to Wanda and vice versa. If your relationship goes pear shaped how are your family going to feel seeing the family’s cash going to a virtual stranger? You need to go to a specialist Solicitor that is used to dealing with all this sort of stuff. I can recommend Slater and Gordon as my mate John went there and saw someone last week and he feels a lot better after my ghastly experience!
Mark says ‘What was that all about then? How can I avoid something bad like that happening to me?’
The friend says ‘It happened to me that's why I am telling you to get this sorted out. You need a proper Agreement drafted by your Solicitor to state what shares you are holding the property in i.e. 20/80% - 60/40% or even 10/90% and you hold it as tenants in common which means your share is protected and if you die your share falls into your estate not automatically to Wanda. That’s just the first issue to consider. The property Solicitors at Slater and Gordon will automatically discuss how you want to hold the property between you before proceeding with the transaction.
Once you have decided how you are going to own the property you need an agreement which states what happens in the event you split up. Imagine if you end up hating each other living in a tiny flat because you can’t afford to move out and she won’t agree to sell.
Common clauses in these agreements which are called Cohabitation Agreements do vary but inevitably include things like who is going to pay the ground rent, is it to be paid in the same proportions that you own the
property by, or equally? What about bills and council tax? Are they going to be paid equally? What happens if there is a dispute about who pays for essential house repairs?.
The main thing is to agree what is to happen if you decide to separate. Provisions in the Cohabitation Agreement need to say that without doubt the property is sold with thought being given to when (i.e. within 2 months or less/more) of the decision to split.
Will you agree to be bound by the decision of an independent valuer as to market price? What proportions should you get back from their initial investment? Most cohabitation agreements state you get back the same percentage of the ‘equity’ (monies left after mortgage redeemed, estate agents and solicitors paid) that you put in; so that if the property market improves you get more and if it doesn’t you get less!’
Mark said ‘I don’t know if I can be bothered, we’re not going to split up, and it will cost a fortune and Wanda will just think I am being cold blooded’.
His friend replied ‘That’s what I thought so I didn’t do it. I had to take my ex to Court to get the property sold and my Solicitors fees and Court fees were over £5000 by the time we had finished. Coupled with the stress and uncertainty and living under the same roof whilst it was going on without knowing the outcome almost brought on a nervous breakdown for me; and I nearly lost my job.
What made me feel worse is that I was told the Cohabitation Agreement would cost about £500 and it could have been done in less than a week.
There isn’t a day that goes by without me regretting not having a Cohabitation Agreement. Also because it became so acrimonious my ex and I don’t see or speak anymore whereas if we had had an agreement, it would all have been so much more civil and we would have known where we stood from the start. I can’t stress enough how much I wished I had listened to my mates who told me I should.
It’s so easy to get a Cohabitation Agreement, all you have to do is say what you want to happen, obviously you discuss it first and as you both want things to work out it is just like an insurance policy. You insure your life, your mobile, your car, and so why not your relationship? Anything can go into the agreement, for instance if you are worried about Wanda’s spending you could put in something like there be a mutual covenant between you to agree not to do anything which may result in a charge or security being placed on the property without your consent. That would affect your share of the equity.
Consider also putting in that neither of you must do anything which could invalidate the insurance on the property, these are just examples. The main one is a clause agreeing that you should sell if you fall out and perhaps give the other party a certain amount of time to give them the opportunity of buying you out’.
Mark said ‘Yes, I see what you mean now. Right I need to talk to Wanda and agree what we need to go in, my family will certainly want to, I expect my godfather will definitely approve’.
And the happy ending is, the Cohabitation Agreement was done and so far all is well, but you never know. It's far better to have it and not need it than the other way round!!
For a free initial consultation about getting a Cohabitation Agreement, call Slater and Gordon on freephone 0800 916 9049 or contact us online and we'll be happy to help you. Ask about our fixed fee Cohabitation Agreements when you contact us.