When purchasing property jointly in the UK, especially with friends, a partner, or family members, clarity around ownership and financial responsibilities is essential. One of the most effective ways to establish this clarity is by using a legal document known as a Deed of Trust, also referred to as a Declaration of Trust. This document plays a critical role in defining the precise terms of ownership, and it can prevent future disputes by documenting each party's contribution and share in the property. In an increasingly complex housing market where people are frequently pooling resources to get on the property ladder, a Deed of Trust has become a vital legal safeguard. It not only reflects the financial reality of the arrangement but also protects individual interests should circumstances change over time. This blog explores what a Deed of Trust is, when it should be used, and why it is so important.
A Deed of Trust is a legally binding document that records how a property is owned by two or more individuals. While the legal title of a property might be held jointly, it does not always reflect the actual contributions made by each party. The Deed of Trust bridges this gap by recording the underlying financial arrangement. It outlines how much each person has contributed to the purchase price, the deposit, mortgage payments, and any other expenses associated with the property. More importantly, it sets out how the proceeds from a future sale will be divided.
This document is typically drafted at the time of purchase, but it can also be created or updated later if financial arrangements change. For instance, if one party contributes a greater sum towards renovations or pays down more of the mortgage, the Deed of Trust can be amended to reflect that shift in investment.
The necessity of a Deed of Trust lies in its ability to prevent misunderstandings and protect individual interests. Without such a document, property ownership is often presumed to be equal by default, particularly in the case of joint legal ownership. This presumption can create unfair outcomes if one party has contributed significantly more than the other.
Imagine two friends purchasing a property together. One pays 70% of the deposit and continues to cover a larger share of the mortgage payments. Without a Deed of Trust, they might be considered equal owners despite the disparity in contributions. In the event of a disagreement, sale, or one party wishing to exit the arrangement, this could result in a substantial financial loss for the higher contributor. A well-drafted Deed of Trust avoids such inequities by clearly documenting each party's stake.
It also plays a crucial role in estate planning. Should one party die, the terms of the Deed of Trust can influence how their share in the property is treated, particularly if the parties own the property as tenants in common. It can work in tandem with a will to ensure assets are passed on according to the individual's wishes.
One of the core functions of a Deed of Trust is to define each party's ownership share. These shares do not have to be equal. The document specifies the percentage of the property that belongs to each owner, based on their initial deposit, ongoing contributions, and any other agreed-upon terms. This clarity is especially helpful when the property is sold, as it ensures the distribution of proceeds is in line with the documented arrangement.
For instance, if one party owns 60% of the property and the other 40%, the Deed of Trust ensures the sale proceeds are divided accordingly. This avoids ambiguity, which can lead to serious disputes, particularly if relationships sour or communication breaks down.
The document can also be flexible enough to reflect future changes. Some Deeds include floating shares, which means ownership percentages can adjust over time in line with contributions to mortgage repayments or renovation costs. This kind of provision is particularly useful in long-term cohabiting arrangements where financial input may vary.
Alongside ownership shares, a Deed of Trust records each person's financial input into the property. This typically includes the initial deposit, legal fees, and any stamp duty land tax paid at the time of purchase. It may also specify ongoing contributions to mortgage repayments, maintenance costs, and insurance.
Recording this information is crucial, especially if the property is sold or if one party wishes to exit the arrangement early. It can also protect individuals who receive help from others-such as parents assisting their children onto the property ladder, by clearly documenting the nature and terms of such financial support.
In many cases, parents provide substantial sums towards deposits for first-time buyers. Without a Deed of Trust, this money may be treated as a gift, with no legal recognition or protection. A Declaration of Trust can clarify whether the money is a loan, an investment with a defined return, or a gift, and how it should be treated upon sale of the property.
Property disputes can be costly, time-consuming, and emotionally draining. The Deed of Trust is a preventive measure that helps to avoid such conflicts by outlining all expectations and obligations from the outset. If a dispute arises over who owns what share or how proceeds should be divided after a sale, the Deed serves as evidence of the parties' original agreement.
Moreover, in the unfortunate event of a breakdown in a personal relationship, the Deed of Trust can provide clarity and stability. Rather than relying on verbal agreements or vague understandings, the parties can refer to the document to resolve disagreements. Courts are also more likely to uphold a clearly written and properly executed Deed of Trust than informal or undocumented arrangements.
There are several scenarios in which a Deed of Trust is particularly useful, if not essential.
Joint purchases are among the most common. Whether it's a couple, friends, or relatives buying together, a Deed of Trust ensures transparency about who owns what. This is especially relevant for unmarried couples, who do not benefit from the same legal protections as married partners under UK law.
Unequal contributions are another major reason for drafting a Deed of Trust. When one party puts forward a larger deposit or pays a greater share of the mortgage, the document ensures their investment is recognised.
Financial support from third parties, such as parents or other relatives, is also a key factor. With house prices at historic highs, it's increasingly common for parents to contribute to deposits. A Deed of Trust can record this contribution and clarify the parent's interest in the property, if any.
The document is also vital for tenants in common, a form of co-ownership where each person holds a distinct share in the property. This is different from joint tenancy, where each party has equal rights to the whole property. When purchasing as tenants in common, a Deed of Trust is almost always used to set out the specific shares each party owns.
A Deed of Trust is not simply a casual agreement-it is a formal legal document and is fully enforceable in the UK courts, provided it is properly drafted and executed. This means it must be written, signed by all parties, and witnessed. Ideally, it should also be created with the assistance of a solicitor or conveyancer to ensure its terms are valid and clearly expressed.
The document should be kept with the property deeds or registered as a restriction with the Land Registry to make third parties aware of its existence. While the Land Registry does not register the terms of a Deed of Trust, it does allow a restriction to be added to the title register, which can prevent one party from selling the property without the other's consent.
A Deed of Trust, or Declaration of Trust, is an essential tool for anyone buying a property with others where financial contributions and ownership shares differ. It provides legal clarity, protects individual interests, and helps avoid disputes by clearly setting out each party's rights and responsibilities. In a property market where joint purchases are becoming more common and financial assistance from family is often necessary, this legal instrument is more relevant than ever.
While it may seem like an added expense at the time of purchase, the protection and peace of mind a Deed of Trust provides are well worth the investment.
Anyone entering a shared property ownership arrangement should seriously consider having one in place - and ideally, seek legal advice to ensure it reflects their intentions accurately and comprehensively.
At Premier Solicitors, we can assist in drafting clear, comprehensive Deeds of Trust tailored to your unique circumstances. Whether you're buying with a partner, receiving financial help from family, or contributing unequally to a property purchase, our expert team will ensure your interests are fully protected. We'll guide you through the legal process with professionalism and transparency, giving you peace of mind and clarity over your investment.
For more information, please call us on 01234 358 080 or visit our contact page to send an enquiry form.
Read more blog posts which Mohsin has written for this website.
