Tue 22 Dec 2015

Co-purchase agreements - avoiding the uncertainty of a cohabitation claim

If you have clients who have, or are about to, purchase a house together, why not suggest they treat themselves to a co-purchase agreement as an added extra? While this may be on a par romance-wise with receiving a set of saucepans as a Christmas present, it can give the gift of certainty and peace of mind - since one of the most common problems faced by separating cohabitants is also one of the most easily preventable.

Most family lawyers will be familiar with the situation where cohabitants have taken title to their home in equal shares, but one of them (the “contributing partner”) has put in a significantly larger share of the initial deposit. If the parties can't agree how this investment should be dealt with on separation, the options available to recover one's unequal share of the equity may not be straightforward.

As in any post-cohabitation scenario, the primary route for a partner seeking recourse is section 28 of the Family Law (Scotland) Act 2006. Advising on section 28 claims is often considered a particular challenge by family practitioners, given the degree of discretion available to the court, the complexity of the legislation and how it has been interpreted, and the limited range of orders available. This scenario is no exception.

On the face of it, there is a clear argument for the contributing partner to be compensated, since to share the equity 50:50 would result in the other partner “deriving an economic advantage from contributions made by the [contributing partner]” in terms of section 28(3)(a) of the 2006 Act. Putting it another way, the contributing partner could also claim that the loss of his/her full investment was an economic disadvantage sustained in the interests of the non-contributing partner.

While this may seem straightforward, like any other section 28 case it may be complicated by arguments about offsetting. If the other partner has made a contribution in other ways, and/or has sustained their own economic disadvantage (perhaps in relation to a child), they may be able to argue that this be set off from the claim for the money invested in the house. The courts have been prepared to award capital sums under section 28 which have the effect of returning unequal deposits (Harley v Thompson 2015 Fam LR 45) and certainly a claim of this kind, where capital contributions can be clearly established in evidence, would seem to fit with the Supreme Court’s ethos of section 28 as a means of ensuring “fair compensation on a rough and ready valuation” (Gow v Grant [2012] UKSC 29). However, many ex-cohabitants will not have either the means or the appetite to litigate, and unless the sums involved are significant it may simply not be cost-effective to do so.

The mechanics of dealing with the release of the property also have to be considered. If one ex-cohabitant will not consent to a transfer of title to the other, there is no basis on which a court can make a property transfer order, as it could in a divorce. The contributing partner could raise an action for division or sale. Since an order for sale would normally result in the proceeds being divided in accordance with the title, which is not the desired outcome, he or she would also require to seek an order for a capital sum under section 28 which could be satisfied from the proceeds. Again, this is likely to be a risky and expensive way to proceed.

While we are always happy to advise clients who find themselves in these difficult situations, we are equally keen to avoid them arising in the first place. A straightforward and cost-effective precaution for unmarried people purchasing a home together is to sign a short and simple co-purchase agreement covering how the equity in the property will be dealt with on separation (or any other event leading to sale). While couples may be reluctant to incur additional legal costs at an already expensive time, when seen in the context of protecting an investment which might make up one's life savings, it is a worthwhile expenditure – and far cheaper than paying for post-cohabitation advice or litigating.

And while nobody wants to think about the worst-case scenario, it needn't be traumatic to consider separation from the outset - indeed, we'd like to think that offering a co-purchase agreement to future cohabitants could become as routine a part of a conveyancing discussion as suggesting clients also make new wills. It may not be romantic, but neither is the alternative if things do go wrong.

If you have clients in this situation, we would be happy to prepare an agreement for the contributing partner (or to advise the non-contributing partner, given that you will be conflicted) and may be able to offer a fixed fee package. If it's already a little too late for that, we can also advise on the application of section 28 more generally.

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