Joint ownership of property and Declarations of Trust
What is a Declaration of Trust?
A Declaration of Trust is a legal document that records the financial arrangements and intentions of property owners, or anyone making a financial contribution towards the property, removing any uncertainty and reducing the chance of disagreements in the future.
You should consider making a Declaration of Trust if you are buying property with someone else, or if someone else is providing financial help, such as a parent. These declarations are particularly important for cohabiting couples who are not married or in a civil partnership.
Joint Tenants or Tenants in Common
There are two ways to jointly own a property; joint tenants or tenants in common.
Joint tenants have equal rights to the whole of the property. On the death of one owner, their share automatically passes to the surviving owner and not under the will or intestacy of the deceased. Married couples, or those in a civil partnership who do not have children from other relationships, commonly use this method of co-ownership because the right of survivorship makes it straightforward to inherit each other’s share in the property.
As tenants in common, you can own different shares of the property either equally or unequally. If one of the owners dies, then their share does not automatically pass to the surviving owner, but to the beneficiaries in the deceased’s will or intestacy.
Holding the property as tenants in common may be appropriate if for example, there are children from previous relationships, unequal contributions to the purchase price or mortgage payments, or a third party has lent or given money.
If you need a Declaration of Trust, then the property must be held as tenants in common. It does not matter if the property is currently held as joint tenants as severing the tenancy into tenants in common is relatively straightforward.
What can a Declaration of Trust include?
Declarations of Trust are tailored to individual circumstances. They can include things such as, how much each person paid, how the money will be split upon sale, how much each person will pay towards the mortgage, and out of which share and in what proportions it will be re-paid from when redeemed.
If one person is making a larger contribution or is paying more towards the deposit or has a family member helping out financially, the person who puts in the greater share can own a greater share of the property, for example 60/40, or receive the amount they put in as a lump sum and then the remaining equity is split, for example 50/50. The Trust deed can also set out what happens if one of the parties wishes to move out and receive their equity and the other does not.
Due to the rise in property prices, it is not unusual for parents or other family members to help children get on the property ladder. In most cases, the person giving the financial assistance will want their money back, or at least have it is secured for their relative, who may be buying the property jointly with someone else.
A Declaration of Trust can specify who put in what money and what happens to it when the property is sold or transferred. This protects everyone who has contributed to the purchase price, whether or not they are living in the property, ensuring their investment is not lost.
What if there is no express Declaration of Trust?
If there is no agreement in place, the position is far more complicated and extremely difficult to determine. If the amounts and intentions of the parties were not recorded at the time of purchase, particularly if there is disharmony between the parties, then you risk losing what can be a substantial amount of money.
There is a presumption that the property will be owned 50/50 and it will be up to each party to fight their case in court, which can be very costly, stressful and protracted. Unfortunately, there is much uncertainty in this area of law and, without proof, the courts will decide what happens, which could be very different to what you had intended or what was agreed at the time.
For more information on Declarations of Trust, please contact Deanne Ferguson.