Deed of Trust - Do I need one?

Written By Katie Chason

If you are buying a property jointly with another person, you should consider if you require a Deed of Trust to protect your investments.

When you own a property, there are two different types of co-ownership – Joint Tenants and Tenants in Common. These two types of co-ownership are very different and it is up to you which you choose depending on your individual circumstances.

 

‘Joint Tenants’ and ‘Tenants in Common’? – Know the difference!

Joint Tenants     Should you decide to hold the property as Joint Tenants then on the death of one of you the property will pass to the survivor of you absolutely.  The survivor will then own it as if they had purchased the property on their own.   This will happen regardless of the content of any Will you may have made.

Tenants in Common        Should you decide to hold the property as Tenants in Common than on the death of one of you, the share of that person will pass according to any Will that they have made and if they have not made a Will then in accordance with the intestacy rules which are in force at the time.

 

What is a Deed of Trust?

A Deed of Trust (also called a Declaration of Trust) is a legal document setting out the division of ownership of a property where owners hold the property as Tenants in Common. It is used by property owners who have paid different sums of money into the purchase of their property, so that if they come to sell the property later, they will each get the same investment back as they put in.

Who is a Deed of Trust for?

A Deed of Trust is typically taken out by couples, but it can also be used by family members or friends who are buying property together.

You are less likely to need a Deed of Trust if you are buying your property 50/50 with your partner as the final sale value of the property would be split evenly after any legal costs have been taken out.

But when you have both put in different amounts of money into an investment, a Deed of Trust ensures that each party gets their fair share back. This can prove incredibly useful in the unfortunate event of a messy breakup or dispute.

Consider the following:

If John and Jayne buy a house together as Tenants in Common for £150,000 and John has put in 60% of the deposit, Jayne has only contributed 40%. A Deed of Trust will ensure that if they come to sell the property, John will get back 60% and Jayne will get 40%.

If there was no Deed of Trust in place, the couple could be in dispute over who owns what share of the property, and there would be nothing to legally stop Jayne claiming 50% instead of her 40%.

When is a Deed of Trust used?

The most common use for a Deed of Trust is to keep a legal record of the different contributions made towards a property, but it can be used for a number of other purposes.

These include recording:

  • How much each party has paid towards the property

  • What each person’s share in the property is

  • If one person has put extra money in at a later date, for example in renovations

  • How much each person is responsible for in outgoings such as mortgage payments, bills and maintenance

  • If a third party, such as a relative or friend, has invested money and is not listed on the Title Deed, but still wants to protect their contribution

  • If one party is unable or unwilling to buy the other out and wants to surrender their interest in the property

So how does a Deed of Trust work?

Since Deeds of Trust are so flexible, you will first need to sit down with your solicitor or Conveyancer and discuss in detail what your basic requirements are and what it is you want your agreement to cover.

Your solicitor or Conveyancer will then draft up a Deed of Trust which you will both need to sign. If you want the changes to be recorded on your Title Deed, your solicitor or Conveyancer will ensure this is correctly registered with the Land Registry. This will ensure that the property cannot be sold without both party’s consent.

Why you need a Deed of Trust:

A Deed of Trust is a bit like a prenuptial agreement – it keeps the investments of one or both parties safe in the case of a breakup or dispute. When you buy a property, there is a huge amount of money at stake and with everyone’s situation being different, it is worthwhile to have a contract drawn up which not only protects each party’s investment, but alleviates the risk of disputes should the relationship come to an end.

Deed of Trust – Do I need one?

If you are buying a property jointly, you should consider if you require a Deed of Trust to protect your investments. When you own a property, there are two different types of co-ownership – Joint Tenants and Tenants in Common. When you buy a property with another person, you will be asked by your Solicitor or Conveyancer whether you wish to hold the property as ‘Joint Tenants’ or ‘Tenants in Common’. These two types of co-ownership are very different and it is up to you which you choose depending on your individual circumstances.

 

Please contact our Conveyancing team for more information.

 

Katie Chason