LEGAL
tenants in common. In the event that a declaration setting out the respective interests is not made, then the courts, in the event of dispute, will start from an assumption that each party holds an equal one half share, until evidence is produced to the contrary. The Declaration of Trust will recite the fact of the joint purchasers’ acquisition of the property and the monetary contributions each has made to the purchase price and expenses. A formula will then be calculated to determine the percentage ownership of each party in the property. This may be complicated by factors such as who is to pay the mortgage and/or other outgoings and the cost of any repairs and improvements to the property. A mechanism should also be put in place giving each party the ability, within a set time frame, to acquire the interest of the other on a first-refusal basis, plus stating how that interest is to be valued. Failing that, the agreement should include a provision that the property be placed on the market for sale in which event the net proceeds would be divided in accordance with the formula. For those leaving nothing to chance, a Declaration of Trust could include terms for repayment of a mortgage, debt and outgoings
It seems certain that demand for some form of pre-purchase property agreement is here to stay.’
THE ‘NON-NUPTIAL’ PRE-NUP As a property lawyer I am regularly asked to advise on the safeguards that can be put in place where houses and flats are purchased by couples who may not have marriage in mind. In these instances the client must be advised as to the different forms of joint ownership and the mechanisms for the division of the proceeds of sale in the event of the parties bringing the arrangement to an end. As a general rule, married couples purchase property in their
joint names as joint tenants meaning that they each own the whole of the property. Accordingly, in the event of the death of one party, the property passes automatically by “survivorship” to the other. There may be occasions, perhaps as part of Inheritance Tax planning where married couples have children from a previous marriage, when both parties will opt for what is known as tenancy in common which is the exact opposite of a joint tenancy. With a tenancy in common each party owns a specific share in the property which does not automatically pass to the survivor in the event of his or her death but instead will pass under the terms of the deceased’s will or in accordance with the rules of intestacy if a will has not been executed. Non-married joint owners, be they cohabiting partners or
friends may be advised to purchase the property as tenants in common if they wish to safeguard their own interest and for that interest to pass to their nominated beneficiaries by will. These arrangements should be documented by execution of
a Declaration of Trust, a non-nuptial equivalent of a pre-nup, prepared by the property lawyer as part and parcel of the conveyancing process. This document recording the agreement of the parties is crucial since the Land Registry does not get involved with trusts (they are “behind the curtain” of the legal ownership) save for recording that the property is held by the owners as
liabilities, ownership of contents and access to the property following a split. A legally binding agreement can go a long way to limiting the aggravation and unreasonable behaviour that frequently accompanies cohabitation breakups. For this reason, independent legal advice for both parties is strongly recommended when executing a Declaration of Trust prior to purchasing a property, to ensure that the agreement is given no inherent bias towards one or other party. Should cohabitation happily end in matrimony however, the
parties may wish for a tenancy in common to be bought to an end and replaced with a joint tenancy more accurately reflecting the parties’ common interests following marriage. Equally a joint tenancy may easily be severed by either party giving a notice of severance to the other and the same be recorded at the Land Registry. At that time the execution of a Declaration of Trust should be carefully considered. However the Law Commission recommendations develop,
it seems certain that the demand among property-buying couples for some form of pre-purchase property agreement is here to stay. Given the cost of litigation when relationships end in acrimony, some form of property pre-nup and, indeed, the purchase of adequate legal expenses insurance at the outset, are invaluable if clients want to secure for themselves the option of a smooth parting of the ways.
Graham Dorman is a partner at Knights Solicitors in Tunbridge Wells and has over 25 years’ experience in conveyancing and non-contentious property law. For more information, visit
www.knights-solicitors.co.uk or call 01892 537311.
www.propertydrum.com/articles/prenup Do you have any views on pre-nups? Log on and add your comments.
PROPERTYdrum APRIL 2011 15
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