The Duke and Duchess of Sussex insist the property still belongs to them, though they no longer reside in the UK. It follows claims of direct talks between the Sussexes and Princess Eugenie and Mr Brooksbank.
The Queen was allegedly not told of the arrangement until after the talks had been held.
An insider told : “Senior royals were initially blindsided by the idea for Harry and Meg to let Eugenie and Jack move in.”
They added the agreement is now “very much a done deal” and said there is “a close bond” between the two royal couples.
Meanwhile, a Buckingham Palace spokesman confirmed Frogmore Cottage “is the private residence of the Duke and Duchess of Sussex”.
However, last week it was reported Harry and Meghan had organised for their belongings to be moved out of the royal residence.
The items were then shipped off to California, where the Duke and Duchess currently reside.
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It is not known how long the living arrangement is due to last, however.
Princess Eugenie and Mr Brooksbank married in October 2018 in a ceremony at St George’s Chapel in Windsor.
Mr Brooksbank works as European Manager for spirit company Casamigos Tequila, while Eugenie is an Associate Art Director at London art gallery Hauser & Wirth.
Royal analysts say the couple have always been close to the Duke and Duchess of Sussex.
A source close to Harry and Meghan told Elle magazine they were “delighted” to let Eugenie and Mr Brooksbank stay at Frogmore.
This year, Harry and Meghan famously paid back the costs of refurbishing the cottage which had previously been billed to the taxpayer.
A spokesman for the Duke said the money – estimated at around £2.4 million – had been paid back to the Sovereign Grant.
They added: “This contribution as originally offered by Prince Harry has fully covered the necessary renovation costs of Frogmore Cottage, a property of Her Majesty the Queen, and will remain the UK residence of the Duke and his family.”
The couple had said they would pay back the money as part of their plans to quit as senior royals.
Harry and Meghan are said to have been “very relieved and very pleased” to have paid the bill, according to an insider.
The source told Vanity Fair: “There was no requirement for them to pay the money back but it was important to them that they did, and after the Netflix deal they were in a position to do so.”