Declaration of Trust

Are you thinking of buying with friends or a partner?

Anyone considering purchasing a property with friends or with a partner should take out a Declaration of Trust (also known as a Deed of Trust)

This will ensure that your interests are protected when purchasing a property. It is important to set out from the beginning what percentage of the property you own. The amount of deposit each person has put down. The percentage of mortgage to be paid by each person and also to state what is intended when the property is eventually sold, such as provision for buying each other out.

The Declaration could contain a right of first refusal in the event of one person wishing to dispose of their share of the property. This is called a right of pre-emption. If one person wished to sell the property the other party would be given notice of this intention and would have the right to buy the others share at market value. Also provision could be made for any children. You could if you wish also state who bought the furniture.

More and more people are choosing to live together without getting married Unfortunately many couples do break up so it is important to protect yourself, whatever the future holds. The Declaration if Trust should be part of the conveyancing process.

What do I need to do to protect my investment?

Purchasers will need to tick a box on the Land Registry form (TR1) to clarify how much of the property each partner owns.

This form asks partners buying together if they are (a) ‘joint tenants’ (b)’ tenants in common with equal shares in the property or (c) ‘tenants in common ‘with shares as set out in the declaration. A common error is to just tick box (a)’joint tenants’ even though one partner has paid a larger deposit or paid a greater proportion of the mortgage. On break up the property will be split 50-50.

Joint Tenants

Joint tenants means that the whole property and its proceeds belong to both owners equally. If one person dies the survivor becomes the owner of the property. Tenants in common however means the property is jointly owned but each owner has a distinct share, which is set out in the Declaration of Trust. If one person dies the deceased owners share will pass according to that persons will or if no will has been made under the rules of intestacy.

Students

If a parent has supplied a deposit a Declaration of Trust could also protect the parents investment if a son or daughter is buying with a partner that they are unsure of.

Many students now buy a property together (with a little help from parents) because it can be cheaper than renting at University. The Declaration of Trust is perfect for this sort of situation. It provides a framework in case anything goes wrong.

Unmarried Couples

In 2007 the House of Lords ruled that unmarried couples who split up have equal rights to a share of the home., but only if they put it in joint names. As with divorcing couples courts will take into account factors such as how much each person put into the relationship etc. and their share will be calculated accordingly.

However unmarried couples can expect to pay huge legal costs dividing their assents when they split.

Drawing up a Declaration of trust when a property is first purchased will make the position clear from the outset.