Parents are increasingly helping their children to purchase their first property, particularly given the less generous mortgages on offer following Covid-19.
In many cases, individuals have had an offer on a first property accepted on the basis of a ‘pre-Covid’ mortgage offer, which has unfortunately been revised downwards, leaving a gap between the funds available and the funds required for their property purchase. Step forward, bank of mum and dad!
More often than not, your child will either be purchasing their property with a partner, or their partner will move in with them either on the purchase completing or subsequently. In such situations it is possible that your son or daughter’s partner may acquire an interest in your child’s property and your monetary contribution. If their relationship breaks down, the partner may be able to assert an interest or greater interest in the property including the deposit you provided. We are sure most parents would want to ensure any monies paid to assist their child in purchasing a property are ring fenced for them absolutely should things go wrong.
Can my child’s partner make a claim against my child’s property if it’s in their sole name?
Yes. Even if your child is the sole legal owner of the property, their partner could assert that they have an interest in it under the Trusts of Land and Appointment of Trustees Act 1996 (“TOLATA”). A claim under TOLATA can extend to the lump sum you have provided to your child to help them purchase their property.
How much would defending a claim under TOLATA cost?
Defending a claim under TOLATA can cost anywhere from £25,000 – £55,000, if not more if the dispute proceeds to final hearing. Added onto this cost are the time considerations and stress. It is therefore vital that the ownership and occupation of the property is recorded in a Cohabitation Agreement and/or a Declaration of Trust.
How can my child protect their property from unwanted claims?
We strongly recommend that a couple living together enters into a Cohabitation Agreement. A Cohabitation Agreement will seek to debar any claims your child’s partner may have to assert an interest in their property, both if the relationship breaks down and in the unfortunate event that your child passes away. These agreements also cover the practicalities of living together and put mechanisms in place for the property to be sold or for one party to leave at a subsequent date to save the costs and stress that proceedings under TOLATA would incur.
If you have gifted monies to your child to assist them in purchasing a property, it is imperative that sum is ring-fenced for your child’s sole benefit by entering into a Cohabitation Agreement. If it isn’t, the gifted sum could be dissipated by an unwanted claim from your child’s partner.
Even if the property is in joint names, it is still advisable to enter into a Cohabitation Agreement and/or Declaration of Trust, particularly if one party has contributed more to the deposit than the other. Please see our article “Is it worth entering into a Cohabitation Agreement or Declaration of Trust if the property is in the joint names of my child and their partner?”