Our Professional and friendly advisers can discuss the options available to you as you set out to embark on what is probably your largest of financial commitments. Ensure you know the risks, the consequences, but also the benefits of arranging for those “what if” scenarios now!
If you are purchasing a property in more than name, a Declaration of Trust can be prepared to set out the interests of the parties. This can include the decision as to whether you hold property in equal shares – 50:50 or some other proportion such as 70:30.
All too often the importance of this document can be overlooked until there is either a disagreement between the co-owners or with a third party such as a trustee in bankruptcy.
The first and paramount decision is how to hold the property, and there is a choice of two possible options:
Joint Tenancy – On the death of one of the co-owners the property automatically passes to the survivor, irrespective of whether alternative provision has been made in a Will.
Tenants in Common- On the death of one of the co-owners the share of the deceased’s interest (what ever that is) will pass in accordance with their will or Intestacy in the absence of a Will.
In light of the continued increase in property prices, it is not uncommon for co-owners, to get financial help from family or friends when buying a property. Consider this example:
A & B buy 12 Smith Street for £250,000. They get a mortgage of £150,000 and the sum of £100,000 is contributed by B’s parents, C!
The property will be held in the joint names of A and B who both have the powers of an absolute owner and can force a sale or postpone a sale. A Declaration of Trust will state that the property, whilst owned by A and B is held on Trust for A, B and C. Further, when the property is sold it will concisely set out the division of the proceeds which may include the sum of £100,000 being returned to C or even its equivalent percentage contribution i.e. 40% of the property value.
As well as dealing with the contributions made to the purchase price, the Declaration of Trust can also deal with other provisions including:
Outgoings - It should be agreed as to whether or not a party who pays outgoings e.g. insurance should be reimbursed.
Repairs - It should be agreed as to whether or not one party has the obligation to carry out repairs and pay costs and then reimbursed from the proceeds.
Power of sale - It can limit the powers of the trustees such as place restrictions on when a sale is to take place. But, this will only bind the parties, not a mortgagee.
Mortgage payments - It can document who is to be responsible for paying these and whether there should be reimbursement on sale.
Continuing Residence – Whilst an unmarried couple may wish for their share of the property to pass to their loved ones following death, they may want to give their co-owner a right to live in the property for as long as they wish.