In the last 12 months, we have seen a sharp increase in adult children buying a house with their parents, or building a ‘granny annexe’ for them in their garden.
A multi-generational living arrangement can be an effective way to ‘pool resources’ enabling the purchase of a larger property and offering older parents the reassurance of knowing they have family close by.
Aside from the practicalities of living together (or in close quarters), there are a few key legal considerations that should be discussed prior to moving in with your parents:
If you’re buying a house with your parents, who owns the property?
There are two ways a property can be owned legally and it’s vital to understand the different types of legal ownership and their implications. We explain the difference between the two types of joint legal ownership in this article here.
If the property is going to be registered in the names of your parents, it’s absolutely vital that a formal legal document is put in place to secure and protect your financial contributions to it.
Are your financial contributions protected?
If you and your parents are both contributing financially towards the purchase of a property, it is really important to enter into a document known as a Declaration of Trust to confirm how the equity in the property is held, and how it is to be divided on sale of the property.
A basic Declaration of Trust prepared by a conveyancer is often unfit for purpose in a multi-generational arrangement and will not sufficiently protect all parties’ financial contributions.
If you or your parents are anticipating spending further sums on the property after purchased, these are unlikely to be protected by a basic Declaration of Trust and you should obtain specialist advice from our Inheritance and Trust Disputes Team about how you can protect your financial contributions.
You can find out more about Declarations of Trust here.
What happens if your parents require residential care?
Whilst generally co-living arrangements are entered into on the basis that care will be provided to parents in later life if required, the reality is that sometimes an individual will require specialist care that cannot be provided at home.
If one or both of your parents require residential care, you should give consideration to whether they would be eligible for state funded care, and if not (or if you would prefer your parent received private care), how the fees for this will be met.
An open discussion with your parents as to their preferences for the future (and how any care fees will be met), can save confusion and stress in the future.
When buying a house with your parents, who pays for what?
It may seem like a basic question, but this can often be a source of contention where one party is meeting the majority of the outgoings in respect of the property. It is likely your parents will not be named on the mortgage, but they may have agreed to make payments to you in respect of it. So what happens if they stop paying you?
The mortgage, household expenses, repairs and improvement works are all issues which frequently are unclear or lead to a dispute. You can protect all parties’ positions by clarifying your agreed arrangements in a Co-Living Agreement. This can be referred to later in the case of any disagreement or uncertainty.
What is a Co-Living Agreement?
A Co-Living Agreement is a bespoke, formally prepared document confirming how the property is owned, the rights and responsibilities of all parties, and what happens in all of the circumstances mentioned in this article.
A Co-Living Agreement can also contain a clear mechanism for one party to buy out another, or for the sale of the property. It is possible for one party to force the sale of a property in which they have an equitable or legal interest, but this is extremely expensive and can take up to 18 months. Clarifying the position in the event one party wishes the property to be sold can save substantial costs and stress.