With the current high price of property across the UK, a lot of people are now opting to purchase property jointly with a family member, friend or partner. Depending on how the property is jointly held however, shares in the property may not always be split equally. Where this is the case parties should have a declaration drafted confirming and protecting their respective interests.
What is a Declaration of Trust?
A declaration of trust sets out the proportions of a property owned by 2 or more individuals. It confirms that the property is jointly held on trust for themselves as tenants in common, and sets out their specific shares.
Why do I need a declaration of trust?
There are two ways of owning property jointly; as “joint tenants” and as “tenants in common”, and each form of ownership is very different.
Joint Tenants each own a property equally, with undivided shares. If sold, the proceeds of sale are divided into equal shares, regardless of respective contributions to the purchase price. A share in a property under this form of ownership is unquantified and cannot be left to someone in a will; on the death of one co-owner, the other automatically absorbs the deceased’s share in the property.
Tenants in Common, on the other hand, own a specified share in the property. Your shares may be equal but they do not need to be. If the property is sold each co-owner will receive a part of the proceeds of sale proportionate to their distinct share. On the death of one of the owners, their share in the property is distributed in accordance with their Will, or the legal rules which determine where an estate passes in the absence of a Will.
If you wish to hold a property as tenants in common, it is important that you sign a declaration of trust in order to avoid future uncertainty. The declaration of trust will formally record the specific shares held by the co-owners, based on their contributions to the deposit, the mortgage and ongoing maintenance. If the property is sold, the document can be referred to in order to ascertain and calculate your entitlement to any sales proceeds.