A Declaration of Trust is a legally binding agreement between joint owners of a property and/or anyone else who has a beneficial or financial interest in the property.
The agreement is usually made at the time of buying the property.
The purpose of a Declaration of Trust is to remove any uncertainty as to what will happen to each person’s money when the property is sold or when one person wants to be bought out. Setting out the financial arrangements at the outset will provide clarity and reduce any disagreements in the future.
Who Should Get a Declaration of Trust?
- If you are buying a property with someone else and have put different amounts into the property
- If someone else is helping you buy a property and you want to protect their money. A Declaration of Trust can specify when and how much money should be repaid, and in what circumstances this money should be repaid. The Deed can provide reassurance to the person investing.
- If you buy a property with a business partner. It can reduce the risk of disagreement and protect everyone’s investments.
- If you are a cohabiting unmarried couple. Married couples have different rights to unmarried couples.
- Cohabiting friends or cohabiting family members and have put different amounts into the property.
- If you are buying with someone who is not named on the mortgage.
Joint Tenants or Tenants in Common?
There are two ways to buy a property jointly:
- Joint Tenants is when the owners each own the property together as a whole. For example, 100% together. The property to passes to the survivor on death.
- Tenants in Common is when the owners hold different percentages of the property. For example, 50% each. On death, the property passes under the deceased’s will or the intestacy rules.
When you buy a property with someone else, it’s possible that the costs of the purchase, the mortgage, stamp duty or other related fees may not be equal. One of you might be putting more towards the deposit, or one of you might be paying more towards the mortgage repayments. Whether you are buying a property as Tenants in Common or Joint Tenants, a Declaration of Trust allows you to set out how much money each person is putting in and how much money each person should receive when the property is sold, or when one person is bought out by the other.
What can a Declaration of Trust include?
It can include:
- The amount each person contributes to the deposit, and how much will be repaid. For example, you may wish to state that each owner gets their initial deposit back and the remaining equity is split equally.
- What percentage of the property each person will own, and how the money will be split should the property be sold;
- How much each owner will contribute to mortgage payments. However, the Lender will still see payments as joint and several so if there are two people named on the mortgage, they will both be liable;
- How each person will contribute towards legal fees, stamp duty and utility bills;
- A calculation of the share a person owns in the property depending on the amount each person has paid towards the mortgage or towards renovations and improvements.