More and more people nowadays are choosing to buy property with another person, whether that’s a partner, friend or family member. But with such a significant financial commitment, it’s essential to protect everyone’s interests from the outset. That’s where a Declaration of Trust for tenants in common (also known as a Deed of Trust) comes in.
What are tenants in common?
In the UK, when you buy a property with someone else, you can choose to own it as joint tenants or tenants in common.
Joint tenants own the whole property jointly, and if one person dies, their share automatically passes to the other.
On the other hand, tenants in common each own a defined share of the property. This can be equal or unequal, depending on what’s agreed. A Declaration of Trust is usually used alongside a tenants in common arrangement to detail the specific shares.
Owning a property as tenants in common gives more flexibility and allows each party to pass on their share to the person/s of their choice in a Will, rather than it defaulting to the co-owner.
What is a Declaration of Trust?
A Declaration of Trust is a legally binding document that outlines how the ownership of a property is shared between two or more people. It sets out each person’s financial contribution towards the purchase and how the proceeds will be divided if the property is sold, one party wants to leave the arrangement or if one person dies.
This document provides clarity and protection if contributions towards the property purchase are not equal – which is often the case when one person has put down a larger proportion of the deposit or pays more towards the mortgage. It’s usually created before the completion of the property purchase; while a Declaration of Trust can usually be arranged after the transaction completes, this comes with added complications.
When might you need a Declaration of Trust?
There are several scenarios in which a Declaration of Trust is not just helpful, but highly advisable:
Unequal contributions
If one party is contributing more to the deposit or mortgage, the Declaration can ensure they get a fair return if the property is sold.
Gifts or loans from family
If a parent or another relative helps out with the deposit, the Declaration can record this and protect their contribution.
Buying with a friend or relative
Unlike married couples, co-owners who aren’t married or in a cohabiting relationship may not have the same legal protections, so it’s vital to be clear on ownership terms.
What’s involved in getting a Declaration of Trust?
Creating a Declaration of Trust isn’t overly complex, but it must be done correctly to be legally valid, and there is no one-size-fits-all version – the document will be tailored to your personal circumstances. This is why working with a solicitor is important. A solicitor can ensure it’s properly drafted, legally sound and aligned with your long-term interests.
The Declaration of Trust document for tenants in common will typically include:
- The names of the property owners
- The purchase price and how it’s being funded
- Each party’s financial contribution
- How proceeds will be divided upon sale
- What happens if one party wants to sell or leave
For advice on Declarations of Trust, contact Amicus Law today.