Co-buying cohabitors

If you and your partner are planning to buy your home in the Netherlands, you may have already discovered that a lot is involved in this process. One crucial facet is financing the purchase sum. Private funds are occasionally used by one of the partners to buy the property. When one partner contributes a greater share of his or her private funds than the other, a compensation claim arises of that partner against the other partner. This also applies to persons who co-buy their home without being married to one another or having a registered partnership.

Though it is not a legal obligation, it is possible to put this claim down in writing. Indeed, it is quite common for cohabiting partners to mention this in their notarial cohabitation agreement. 

This article explores the nature of compensation claims and how cohabitors can regulate them

What is a compensation claim?

A compensation claim means, for example, that one person invests more than the other person in a joint home. This gives rise to a claim against the other person in favour of the paying person. The individual who invests no money or less money will have to pay that amount back to the other individual.

The rise and calculation of this claim is regulated by law for spouses and registered partners. For unmarried cohabitors without a registered partnership, however, it is not. To ensure that it is crystal clear which rules apply to them and that the claim is recorded unambiguously, therefore, cohabitors are always recommended to mention this claim in their cohabitation agreement.

The following example should clarify why having the claim recorded is important:

Mark and Fiona buy a property together. Their aim is to become owners each for an equal share of 50%. The value of this property is €500,000. They take a mortgage loan of €300,000, in addition to which amount Mark invests €200,000 of his own money in the property. Mark and Fiona make no further agreements concerning this payment.

Though they become owners on a 50/50 basis, Mark invests €200,000 more than Fiona. This means that Mark pays €200,000, of which €100,000 he pays for himself (his 50% share in the ownership) and €100,000 he pays for Fiona (her 50% share in the ownership). After Mark and Fiona’s relationship has ended, they sell the house.

They were each entitled to 50% of the property. Thus, they are each entitled to 50% of the sales proceeds. However, the question remains how Mark’s claim due to his overpayment will be treated in this matter. After all, they have not made a cohabitation agreement in which this claim could have been recorded.

As previously mentioned, there are no statutory rules regarding compensation claims that apply to cohabitors. If cohabitors agree to put their investments and compensation claims down in writing, this can be included in a cohabitation agreement made by a notary. The moment a cohabitor wants to enforce the compensation claim, he or she can simply refer to the cohabitation agreement in which this claim was mentioned.

What is put down in the cohabitation agreement concerning the claim?

A compensation claim may be put down in writing in a cohabitation agreement, as stated above. You may regulate that your investment always remains the same amount (nominal) or that the invested amount could change due to increase or decrease in value of the property (investment doctrine) that was the object of investment.

Furthermore, you can also include provisions in the cohabitation agreement regarding:

• what should happen to the claim when the relationship ends due to separation;
• when the claim can be enforced; and
• what should happen to the claim when one of you dies, as you may decide that the claim is passed on to your heirs.

What happens if there is no cohabitation agreement?

As there is nothing regulated by law in relation to compensation claims for cohabitors, case law (court decisions) will have to be taken into account. In practice, compensation claims are often only invoked once the relationship has ended due to separation. If cohabitors do not separate on good terms, opinions may differ on the right to compensation, the cohabitors will then have to start a court procedure to have ascertained which one of the partners is entitled to a claim and what the claim size is.

The claimant-cohabitor is obligated to prove the existence of this claim and its size, which may be a very difficult task to realise. The appeal must namely be well-founded and the other cohabitor may be able to provide counterevidence.

In addition, an unrecorded claim may expire after certain amount of time, which means you run the risk of getting nothing back at all.

Furthermore, the court will have to assess whether you are entitled to this compensation claim. Proceedings can take a long time and can incur substantial costs.

Arranging a meeting with Westport Notarissen

Please do not hesitate to contact us for more information on the matter of your cohabitation agreement and to schedule an exploratory appointment.  During this appointment, we can precisely determine what is needed in your case to create the right cohabitation agreement for you.

Want to learn more about what does a notary do in the Netherlands?  Please click here.