Buying a house with someone else is a common way of getting onto the property ladder.
But what happens if two tenants in common are investing different amounts?
How is this tracked – and how can both parties ensure fairness?
Introducing a deed of trust on a property…
What is a deed of trust on a property?
A deed of trust on a property is a document that states how it’s divided between the owners.
This is usually used for tenants in common arrangements (a common property ownership type).
Each person has a share in the house, and these may not be equal.
A document can thus keep track of who owns how much and what happens under certain events.
For example, if one of the owners wishes to be bought out, the deed of trust outlines the process for doing this.
The deed of trust is binding. But it can be modified further down the line, if everyone agrees.
For example, a change in ownership percentage might reflect one person paying for renovations.
A deed of trust is not the same thing as a mortgage. The deed of trust is created after you’ve got a mortgage in place.
Reasons to get a property deed of trust
The people living there are unmarried
When two people are married, the law guarantees that their belongings will pass to the surviving spouse if one of them dies.
But this isn’t the case when you’re unmarried.
A deed of trust ensures that your wishes are carried out. And that your ownership is transferred to the intended recipient, even if you aren’t related.
The finances are complicated
Sometimes, the finances surrounding a property transaction can be complicated. This is especially true if multiple people are involved with varying equity levels.
Keeping a clear, legal record of who owns what ensures that everyone is treated fairly.
It also allows for numerous possibilities.
Everything is kept legally ‘above board’. Without this, you could struggle to keep track of everything that’s occurred.
Someone plans to move out in the future
Just because you’re living with someone now, that doesn’t mean it’ll always be that way.
One person plans to move out soon, while the other wants to stay there.
A deed of trust is prepared in this circumstance to ensure that both parties receive what they want.
A parent is involved with the initial purchase
A deed of trust is useful when a parent is helping their child buy a house. Still, that property is being purchased by someone else.
This legal document can protect the parents’ contribution without requiring them to be on the title deeds. It reassures them that their child is entering a fair deal.
How to get a deed of trust.
1. Find a solicitor to support you
A conveyancer can assist you in obtaining a deed of trust.
You and your co-resident may choose to have the same professional represent you. This makes sense, as long as you’re all on the same page.
Alternatively, you may bring in a second conveyancer to support each party surrounding the deed of trust.
2. Draft the deed of trust
Your solicitor will draft the document.
This will be done in consultation with you, once you’ve explained what you’re trying to achieve.
3. Sign and witness the document
Once you and your co-resident are happy with the deed of trust, you need to sign and witness it. This makes it binding.
4. Submit it to the Land Registry
You will often need to submit this document to the Land Registry. Check with your solicitor whether that’s the case.
Deed of trust costs
A typical price for a deed of trust is approximately £360.
Witnesses
A witness should be present for the signing of a Deed of Trust on a property. Ideally, each person involved will have their own witness.
This person can then sign their name to confirm that they were present at the time of the document’s signing.
Advantages of deeds of trust
Avoiding disputes
Firstly, the document provides clarity for all parties involved.
This helps to avoid disputes about who owns what, how much equity they are entitled to, and so on.
For example, if a third party contributes to the mortgage, it creates a complicated situation. Having everything written down is beneficial.
Confidentiality
Another advantage of a deed of trust is that it is completely confidential.
All parties involved can maintain their privacy. You don’t need to share it with anyone outside of the deed.
Tax advantages
With the proper legal guidance, a Deed of Trust can offer tax advantages.
In many cases, transferring property through trusts can alleviate concerns around inheritance tax.
Alternatives to a deed of trust on a property
Cohabitation agreement
This document explains the financial relationship between cohabiting couples.
A cohabitation agreement encompasses more than just property ownership. It also refers to other financial aspects of the relationship.
Tenancy by the common agreement
When you live as a tenancy in common, a document is created to establish the details.
This is known as a ‘tenancy in common agreement’. It’s legally binding and focuses on all the key aspects of ownership.
Should I get a deed of trust?
A property Deed of Trust can provide you with enormous protection. Even if your current relationship with the person is positive, circumstances can change.
And even if you remain friends, it provides clarity to have it stated how much each person owns.
If you ever live with someone else in the future, the deed of trust document will be invaluable.
If your parents have supported you buying your house, you should undoubtedly get a deed of trust.
You must engage a qualified solicitor to assist you with the Deed of Trust for a property.
This will help to guarantee that the document is legally binding and holds up in court. It also protects everyone involved in the property transaction’s investment.
