When you purchase a property with someone, you effectively hold the beneficial interest of the property on a trust between yourselves.
How does this affect me?
There are two different ways that joint owners can hold property. This will affect:-
(a) the division of the proceeds on a sale; and,
(b) what will happen to the property if a joint owner dies.
This applies equally to married or unmarried couples or if another person contributes to the purchase price of the property which is to be purchased in another person’s name.
What do I need to think about before I jointly purchase a property?
The following issues have to be considered when purchasing a property:-
(a) Who will own the property and in what shares?
(b) Whose names are going to appear on the Property’s Register, i.e. “registered proprietors”?
(c) What will happen to the property in the case of death or if a relationship comes to and end?
What steps can I take to safeguard my investment?
It is very important to discuss these issues with each other and to take further legal advice, where needed. A Declaration of Trust is an agreement between the joint owners on the following matters:-
(a) How the proceeds of sale will be divided if the property is sold.
(b) Whether you have a right to request the other to sell their share in the event of a either a dispute or a relationship breakdown.
(c) Who is to pay the outgoings, including any mortgages (for which both owners will have an obligation to repay) and in what proportions.
What if things go wrong?
One of the most frequent areas where problems arise is where an unmarried couple buy a house without making provision regarding financial and practical issues. Careful consideration should be given to what would happen if their relationship breaks down or if one of them were to die. Failure to agree and properly record their wishes can lead to costly legal disputes.
What are the choices?
A property can be held in joint names in two ways:-
(a) Beneficial Joint Tenants. You hold the property ‘as one’. Individual shares are indistinguishable. On a death of one party, the legal and beneficial interests in property will automatically pass onto the surviving owner, whether or not a Will has was made. Opting for this method of ownership does not protect any individual financial contribution towards the purchase price. This will become a point of contention if a relationship breaks down and the property is sold before a death.
This method of ownership is suggested when joint owners:-
* are married
* do not have children from a previous relationship
(b) Tenants In Common. You have a choice to specify your individual beneficial shares in the property; i.e. equal shares or unequal shares. By opting for this method of ownership, individual financial contributions can be protected by express agreement in a Declaration of Trust. Also, the properties will not automatically pass to the surviving owner but to those beneficiaries in the deceased’s Will or if there is no Will, to those beneficiaries when following the laws of intestacy.
This method of ownership is suggested when joint owners:-
* are married but have children from a previous relationship
* are married but want to protect individual financial contributions
* are not married
* are contributing unequally to the purchase price
* are receiving financial gifts from parents
* have made individual Wills
What if I have a mortgage?
In situations where a relationship comes to an end and one party moves out of the property, disputes can arise in respect of continuing mortgage payments. It is frequently argued between parties that once a party moves out of the property, they do not want to continue paying the monthly mortgage payments. Until a party has been formally released from the obligations under the mortgage, a party remains responsible for making monthly mortgage payments. This issue can be dealt with in a Declaration of Trust.
Why a Declaration of Trust?
This is a formal agreement between parties in which they specifically state the basis of their co-ownership, their individual financial contributions, and shares and who is responsible for what expenses, i.e. mortgage payments, insurance, etc.
Many people wish to avoid the expense of a Declaration of Trust when purchasing a property, a time when there are many costs being faced. I always advise my clients to bear in mind that it will be far cheaper to deal with it properly at this stage, rather than incurring legal fees at a later date when you attempt to resolve a dispute. If you wish to hold the property in unequal shares a Declaration of Trust and a Will would be considered essential.
A Declaration of Trust can only deal with the situation as it stands at the time it is made. If subsequently the parties adjust the arrangements as to repayment, or wish to adjust the proportions in which they wish to hold the property, a new Declaration of Trust will be required.
If a Declaration of Trust is not made it is extremely difficult to predict the outcome in the event of the relationship breaking down, and the implications of the death of one of the parties can be grave.
Main Image by Julie Magro under a Creative Commons Licence