Private Lives - Declarations of Trust

09 January 2020

We are all familiar with this story. Two people fall in love, buy a house together, and then don’t live happily ever after. But what happens when the property is sold and there is no agreement as to who owns what?

Whether it’s a couple breaking up, a family falling out or a business venture gone wrong, this is an increasingly common situation. Although a lot of property is owned jointly, often the parties have not considered what should happen in the event that their arrangement does not work out. 

In the absence of any written agreement, it can be very difficult to determine which party owns which shares in the property. It is often assumed that where parties have contributed unequal amounts to a property, this automatically entitles one party to recover more from the property than the other, but unfortunately this is not the case. Where the owners are both registered on the legal title, the default position is that the property is owned in equal shares unless there is evidence of an agreement to the contrary. This is the case even if one party had contributed more to the purchase price or contributes more towards the mortgage. This can often lead to unsatisfactory results, with one party feeling aggrieved and that they have ‘lost out’.

Similar situations can arise where only one party is registered as the legal owner, but the other party/ies has / have made significant contributions to the purchase price or the maintenance of the property. In this scenario, parties are often unable to come to an agreement as the relationship between them has broken down and the involvement  of the courts is therefore usually required in order to conclude matters.

In order to avoid conflicts and disagreements later on, it is therefore advisable for clients to consider entering into a Declaration of Trust to govern who owns what share of the property from the start. These agreements range from the straightforward, for example, simply confirming that one party owns 60% of the property and the other owns 40%, to the more complex, including contributions made towards the mortgage repayments or sums towards improvement works.

If both parties have obtained their own independent legal advice on the document, these are usually held to be binding on the parties and the courts are extremely reluctant to unravel these unless there are exceptional circumstances. Purchasing a property is a very exciting time for most people, and their focus is often concentrated towards moving days, packing up and redecorating, with most people reluctant to acknowledge what should happen should the relationship break down and they have to sell their dream home. However, consideration of this tricky topic at the outset can avoid a very costly, time consuming and emotionally distressing case later down the line. Our Private Client team have extensive experience in advising on and preparing Declarations of Trust, so please do contact one of our team if you would like further information. This edition also includes an article on how Birketts’ specialist property litigators may be able to assist with property disputes.

This article is from the winter 2019 / 2020 issue of Private Lives, our newsletter covering the key legal and tax issues that individuals face. To download the latest issue, please visit the newsletter section of our website. 

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