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Declarations of trust (formal written agreements regulating the arrangements between two or more (typically unmarried) co-owners of property) are often overlooked when people buy a property together. If you co-own a property with someone, then you need to be clear about what you each own and are responsible for (although they can have a role as part of efficient tax and estate planning). Married couples buying together typically need worry less about doing this – other co-owners need to protect all parties concerned against the following typical scenarios:

• One owner dies and although his Will makes clear what should happen to his share of the property, it isn’t clear what actually is his share.

• The co-owners fall out. They made unequal contributions to the purchase price and ongoing running costs and haven’t recorded what should happen next. Who owns what? Should the property be sold? How should the sale proceeds be divided?

• Parties co-own the property for so long that when it comes to sell, everyone has forgotten what was initially agreed.

It makes sense to be sure that all parties do have the same common understanding at the outset.

For example:

• Fred and Jane (an unmarried couple) buy their home together for £300,000. Jane contributed £30,000 and the rest is borrowed on a mortgage which they will pay equally. They are agreed that when the property is sold, Jane should receive her contribution back first.

The property is sold for £400,000. Fred expects Jane to receive the first £30,000 and for the remainder to be divided equally. Jane thinks that she will receive the first £40,000 (representing her initial 10% contribution) and for the remainder to be divided equally.

Fred and Jane discover that they never had the same understanding of what should happen, and nothing was ever drawn up to help regularise the situation.

• Friends buy an investment property together. Again, it is wise to record who contributed what, and on what basis (e.g. as to the benefit / burden of appreciation / depreciation, responsibility for outgoings, etc.) and under what circumstances it should be sold, and how the sale proceeds should be divided.

• Fred and Jane buy their council house under the ‘right to buy’ scheme – their daughter, Sally, provides the purchase monies.

Sally thinks that the property should belong entirely to her when her parents die because she provided all the money.

Sally’s siblings think that Sally’s contribution did not add up to the entire value of the property – it was a mixture of her money and the parents’ tenancy. They think that Sally already owns that part of the property which she has purchased and Fred and Jane should leave ‘their part’ equally between all the children in their Wills.

What is ‘their part’?

While it is best to make declarations of trust at the time of the purchase, if you did not do so, it is still possible to do so later, so please do contact us if we might be able to assist. Paying for legal advice can be a good investment in the long run, avoiding not only costly legal battles but the inevitable collateral damages to relationships, often in an otherwise close-knit family context.

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