Following the Government’s recently announced relief on Stamp Duty Land Tax, there has been a massive surge of individuals looking to take this opportunity to buy a property. If you’re buying a property that needs a little ‘TLC’ (or perhaps a lot!) and are planning on renovating it, there are some important factors you should consider:
Are you buying the house in your sole name?
Ask yourself whether a friend or unmarried partner may live with you in the property in the future. Even though the legal title to the property is in your sole name, a person living in the property with you may make a claim for a share in it. A Cohabitation Agreement seeks to debar any such claims and protect your property. Further information on Cohabitation Agreements is available here.
Are you buying the house in joint names?
If you’re planning on putting the house in joint names, seriously consider how you wish to hold the property. You can either own a property as joint tenants or tenants in common, and this will dictate what happens to your share in the property on death.
Joint Tenants
If you are joint tenants, the deceased’s share will pass automatically to the surviving owner regardless of any Will.
Tenants in Common
If you are tenants in common, the deceased’s share will pass in accordance with their Will or the rules of intestacy.
What documents do you need?
There are two documents that we advise can be put in place to protect your contributions; either a Declaration of Trust or a Cohabitation Agreement. Whilst we recommend that you put one of these documents in place at the time your property is purchased, it is not too late to put one in place after this.
A Declaration of Trust
It’s important to note that a Declaration of Trust is final. It is absolutely vital that you receive the appropriate advice before purchasing your property.
The transfer document you sign when you purchase a property will contain a box titled ‘declaration of trust’, which confirms whether you wish to hold the property as joint tenants or tenants in common. This document is considered binding and final (unless one of a few exceptional circumstances arise). If you would like yours and your co-owners’ respective shares in the property to vary, for example if you spend £10,000 on a new kitchen, then it is imperative that you seek advice on putting in place the relevant documents to achieve this.
Cohabitation Agreement
A Cohabitation Agreement is a document which confirms the rights and responsibilities of each party in respect of the property, finances, savings and other outgoings. It can also deal with arrangements if the relationship ends and seeks to debar the various claims that can be made by each party against the other, the property, or the Estate of the other on death.
We often recommend that a Declaration of Trust is contained within the Cohabitation Agreement to offer as much protection as possible.
You can read more about Cohabitation Agreements here.
What else should you be aware of when renovating a joint property?
#1 – You may not get back the money you invest if you don’t put in place the necessary documents
If you do not put in place a Declaration of Trust or Cohabitation Agreement, you may be essentially ‘gifting away’ some or all of your investment. If you own a property as joint tenants, you spend £100,000 on renovating the property and your co-owner spends nothing; you will each still own 50% of the property.
#2 – Non-financial contributions may still give rise to an interest in the property
You may assume that where a person does not contribute financially to your property, but does make non-financial contributions (such as manual labour), they may still have a claim against it for an interest. If you have a friend or partner assisting you, it is vital that you protect yourself and your property from claims by a third party.
#3 – If your parents are gifting you money to assist, you should ensure their contribution is protected
If you and your co-owner’s relationship breaks down, and you have not put in place a Declaration of Trust or Cohabitation Agreement, you may risk losing all or part of your parents’ gift. There are claims available to parents to seek to recover their contributions, however such claims are extremely costly and may outweigh their financial contribution altogether.