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Purchasing a Property

Purchasing a Property

What is a Declaration of Trust?

A Declaration of Trust is a legally binding document which sets out who owns the property, what proportion of the property they own, and whether anybody else has an interest in the property. The document can deal with all sorts of other matters including who pays the mortgage.

How do I own my property?

There are two ways to own a property with another person:

1. Joint Tenants

2. Tenants in Common

In the event of your death, your share is automatically left to the survivor – you get no choice over this. Also, if the property is sold during your lifetimes all the owners are entitled to an equal share of the sale proceeds.

The property belongs to you jointly, but you own a specific share of the property’s value which you can sell, or which can be left to your chosen beneficiary in your Will.

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Frequently Asked Questions

What is a Declaration of Trust?

A Declaration of Trust is a legally binding document which sets out who owns the property and exactly how the property proceeds should be divided if it is sold. Most commonly it is used to protect a person’s initial contribution where the contributions are unequal. A Declaration of Trust is something that you should consider when you are buying a property with a partner, friend or another family member.

For example, Sam and Sally are in a relationship but are not married. When they purchased their home, Sam contributed £5,000 and Sally contributed £10,000 towards the deposit. They entered into a Declaration of Trust which states that if the property is sold, the proceeds will be divided so that Sam will receive £5,000, Sally will receive £10,000 and the balance will be shared.

What if we do not have a Declaration of Trust?

If you do not enter into a Declaration of Trust and are not married you may only get an equal share of any sale proceeds.

Continuing with Sam and Sally, if there is no Declaration of Trust, the starting point would be that the sale proceeds will be divided equally, despite Sally having contributed more towards the deposit. To most people, this will be unfair. Sally would have to bring a litigation claim under trusts law to demonstrate why she should receive more. In the absence of any legal document such as a Declaration of Trust, the court may simply conclude the net equity should be divided equally. Having a Declaration of Trust is therefore helpful in determining the intentions of the parties and may avoid lengthy and costly litigation.

Contributing more money to the property than other owners

You should consider purchasing as tenants in common and having a Declaration of Trust to establish what share of any sale proceeds you are entitled to. This is particularly important if you and your co-owner are not married.

Contributing to the purchase without legal title

You can still enter into a Declaration of Trust with the owners to establish that you are entitled to a share of any sale proceeds.

We have already purchased the property

It is not too late; you can enter into a Declaration of Trust by agreement at any point.

What can happen if we do not enter into a Declaration of Trust?

If you make a greater contribution towards the property than any other owner, you may only get an equal share of any sale proceeds. If you contribute money but are not an owner, you risk losing your money altogether.

If there is subsequently a dispute over who is entitled to the sale proceeds, there are various ways to try and resolve the dispute such as mediation, the collaborative process or negotiations through solicitors. If no agreement is reached, court proceedings may be required to resolve the situation.

Resolving a dispute can be costly and time consuming and we would therefore recommend that a Declaration of Trust is entered into when purchasing a property.

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If you would like to know more about this process or feel this could be something you would benefit from, please contact us at [email protected] or telephone Ipswich 01473 213311 or Colchester 01206 584584, where we will be happy to speak with you.

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Family and Property Team

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