In a time when much has been made of the scarceness of mortgages for residential property purchasers, a number of legal complexities and uncertainties over spouses and their rights continue to exist, forcing lenders to be wary. We give an overview of the property rights of spouses, civil partners and cohabitees and how these might affect you, whether you are buying a property, conveying or thinking of lending money.
Firstly, spouses and civil partners do not actually have to have a stake in the ownership of a property to have rights that must be considered. A spouse or civil partner that does not co-own the legal estate will have so called ‘home rights’ under section 30 of the Family Law Act 1996, which apply when the owner of the property tries to exclude the other partner or sell the property relying on his or her sole legal ownership.
These ‘home rights’ extend to a right not to be evicted or excluded from the property, or any part of it, except under a court order in accordance with section 33 of the same act. This order might be used by either partner if the marriage or partnership is dissolved. They also have the right to occupy the house if it is unoccupied.
They also have the same status as the sole owner of the property in respect of payments or tender towards satisfaction of any liability, eg. Rent, mortgage repayments and other outgoings. Such payments will be legally considered by the payee as having come from the owner of the property and bearing the same authority.
These points do not apply for couples where the property has at no point been their marital home or the home of their civil partnership and thus is not applicable for cohabitees.
These ‘home rights’ will only bind a buyer of the property if the home rights are actually registered on the title with the land registry as a notice on the charges register, registration of which rights can be carried out up until the sale is completed.
For solicitors, this means that the conveyancer for the buyer will need to negotiate the removal of these rights with the homeowner. Where a seller’s solicitor becomes aware of the existence of a spouse or civil partner who has not yet registered a home right, then the solicitor must obtain the spouse or civil partner’s agreement to the proposed sale. It is good practice that a formal agreement be prepared for the spouse or civil partner to sign before contracts are exchanged.
From the perspective of lenders, the greatest complexity occurs when the partner has made no mortgage payments and has an equitable interest in the property that will bind the lender. The lender can therefore not get an order for possession against that individual where he or she has a right to occupy the land but has not played a part in the mortgage of the purchase of the estate. In particular, section 12 of the Trusts of Land and Appointment of Trustees Act 1996 will not allow the court to order possession, meaning that the proceeds of any sale by the lender after obtaining vacant possession will have to be split with the partner of the borrower.
Undue influence is also a concern to potential lenders. If a spouse, cohabitee or civil partner can show that they were exposed to the pressure of undue influence, the mortgage can be set aside under a claim that it does not bind them. The leading case law for this is Royal Bank of Scotland v Etridge (2001) and it reinforces the widely held principle that any contract entered into under undue influence is voidable under the law of equity.
Such situations highlight why any party offering a mortgage secured on a home or selling a property with a mortgage should take professional advice from a solicitor or an appropriate legal advisor.
If you are securing a mortgage, thinking of lending money for a property purchase for a client, contact the propertysurveying.co.uk team to find a local Chartered Surveyor that can assist.