Basic Deed of Trust

14/07/2018
A Deed of Trust is an 'Express or Bare trust' that sets out the individual interests and intentions of joint owners of a property. The detail of the deed of trust will depend greatly on the relationship between the co-owners of the property. Without a deed of trust, joint owners will rely on trust law to seek enforcement of their beneficial rights to property in the future; either a resulting trust or a constructive trust. You can only execute a deed of trust if you hold the property as tenants in common - click to read the pros and cons of joint tenants vs tenants in common.

In most cases the deed is used to declare the size of the beneficial share of the property between the co-owners who hold the property as tenants in common (you can't have a deed of trust and own the property as joint tenants). The deed contains various clauses that set out how the joint owners wish to hold the property on trust together and is usually drafted during the purchase process, but can also be drafted afterwards. The detail in a trust deed can vary considerably. Click to read our Frequently Asked Questions.

Do you need a deed of trust?

We offer a number of different deed of trusts based on the circumstances of the joint owners. These include:

  • Basic Deed of Trust aimed at married couples, long term relationships and family members looking to declare the individual beneficial interest and confirm an exit startegy for when either party wants to sell (read on for more information about this type of deed).
  • Buy to Let Deed of Trust aimed at joint owners looking to share property income in a tax efficient way (to be filed alongside a Form 17 declaration to HMRC)*.
  • Silver Deed of Trust aimed at unmarried couples and friends and includes a more complex formula to calculate the beneficial interest over the life of the investment taking into account mortgage repayments, costs of purchase/sale and developments (click here to find out more).

Our solicitor can help you draft a basic deed of trust. For help call 0333 344 3234 (local call charges apply) or click the link below to get a quote.

Get a Deed of Trust Quote
* You should seek independent tax advice.


In the article below, we run through what a basic deed of trust includes:
(Click to go straight to the specific section)



Fixed Fee, No Sale No Fee with a 5 out of 5 rating

 

What sort of relationships does a Basic Deed of Trust suit?

The Deed suits longer term relationships where the purpose is simply to note the joint owners' separate shares of the property and what to do when the property sells. It doesn't include clauses to account for shorter term relationships where you would want to have pre-agreed terms in place in the event that the relationship breaks down.

Law of Property Act 1925 states "A declaration of trust respecting any land or any interest therein must be manifested and proved by some writing signed by some person who is able to declare such trust or by his will".


The Basic version is recommended for joint owners who are:

The Basic version is NOT recommended for joint owners who are:

  • Married couples or civil partners
  • Family members
  • Unmarried couples (already living together)
  • Buying a property with a Gifted Deposit from parent/s

  • Unmarried couples (not living together)
  • Friends
  • Joint Mortgage Sole Proprietor relationships

What is and isn't included?


It includes:

  • Your deposit contribution is shown clearly and separately from those of other joint owners
  • You agree the percentage of your beneficial interest of any gain or loss (this is fixed and doesn’t account for payments made during your joint ownership such as mortgage repayments or repairs/renovations)
  • Lists Registered Legal and Non-Legal Owners
  • Calculation for working out any gain or loss from rental income
  • Mechanism for buying out any other party’s share of property
  • Allows for unregistered Beneficial Owners (for example parents investing with children or for Joint Mortgage Sole Proprietor mortgage products)
  • Section for stating individual contributions towards outgoings
  • All terms explained in simple English

It doesn't include:

  • A formula to account for varying contributions towards mortgage repayments or repairs/renovations
  • Mechanisms to protect you if a joint owner stops paying their share of the mortgage repayments
  • Procedures to sell your share of the property
  • Procedures for property repair or renovation costs (including how to calculate any gain because of the development of the property)
  • Procedures to sub-let your share of the property
  • Procedures if the relationship breaks down
  • Procedures if you can't afford your mortgage repayments
  • Any cohabitation agreements including splitting bills, living arrangements and how to settle an argument 
  • Inventory listing of the personal possessions for joint owners

Do you need Independent Legal Advice about the Trust Deed? We recommend each joint owner speaks to an independent solicitor to ensure they understand their obligations under the trust deed before they sign it, however you can choose not to do this if you are happy to sign without legal advice.

How to get the Basic Deed of Trust

The trust deed is completed by our document creation service using the information you provide (see our terms here). You can order yours directly with us by calling 0333 344 3234 (local charges apply).

  • You confirm your intentions for the trust deed
  • The trust deed is drafted for your review
  • All parties need to read the agreement and email any amendments to be made
  • You can choose to seek Independent Legal Advice about the contents of the agreement with a qualified solicitor. We recommend each person signing the trust deed speaks to a solicitor to ensure they understand their obligations under the agreement before they sign it, however you can choose not to do this if you are happy to sign without legal advice. Print a copy for each party and one extra to be sent to your solicitor
  • If all parties are satisfied with the contents of the trust deed then all copies of the final agreement should be signed and witnessed
  • Send one copy of the signed and witnessed trust deed to your solicitor by recorded delivery – do not email it. Each party should safely keep their signed copy of the trust deed ready for when they need it in the future
  • Your solicitor registers a restriction at the Land Registry over the title of your property

    The restriction for a basic deed of trust is normally:


    "No disposition by a sole proprietor of the registered estate (except a trust corporation) under which capital money arises is to be registered unless authorised by an order of the court."

    (The above restriction prevents one party from selling without the consent from the other party/ies in the absence of a court order)
  • If applicable for a buy to let property - complete your Form 17 Income From Property to HM Revenue and Customs

What are the limitations of the Basic Deed of Trust?

When you jointly own property you may find your circumstances change; loss of a job, illness, income changes, mortgage interest increases and so on. The Basic Deed of Trust only accounts for a fixed share of the property based on the amount of deposit you invest at the outset. It doesn't take into account changes in the relationship where one person may have to cover more of the mortgage than the other or if you paid more than your other sharer/s for the development/extension of the property. This leaves you exposed and having to seek settlement of a 'Constructive Trust' from the other joint owners for sharing these costs unequally, which could lead to a lengthy and costly court battle.

Our Silver Deed of Trust use a formula that take into account the mortgage repayments and contributions to deposit and any development works when calculating the final distribution of any gain from sale.


Frequently Asked Questions


"Can I use the Basic Deed of Trust when buying as joint tenants?"

No. When buying as Joint Tenants you own the property 100% with the other joint owner. If you want to own separate shares of the property then you have to buy as Tenants in Common. Read more about joint tenants here.

"What is the difference between a trust deed and Shared Ownership Protection?"

They are all the same and are legally binding documents where joint owners set out their intentions to protect their money invested in the property. Shared Ownership Protection is our own branding for a deed of trust for which we have 3 levels, Basic, Silver and Gold, which provide different levels of detail.

"Does the Basic Deed of Trust take into account mortgage repayments?"

The Basic Deed of Trust states each Party's individual share of the outgoings, but doesn't include a way for these to be used to calculate an increased beneficial share in the property like the Silver Deed of Trust does.

Remember that all parties to the mortgage are joint and severally liable for its repayment. The challenge that often arises for joint owners is when mortgage repayments aren't paid by one party and have to be covered by the other. The Basic Deed of Trust only states that the joint owners will pay a share of the outgoings, which means that, in itself, the agreement doesn't offer a simple solution and the joint owners will be left needing to seek further legal support using the argument of either:

  • a Resulting Trust as the share of the mortgage repayments were pre-agreed before the mortgage was taken out (see case Cowcher Vs Cowcher where client A paid 100% of the deposit, but client B paid 100% of the mortgage); or
  • a Constructive Trust by way of no agreement before the mortgage was taken out (see case Curly Vs Parkes where Ms Parkes' sole name was on the mortgage and paid 100% of the deposit, however Mr Curley paid off some of the mortgage with a lump sum).

Obtaining a judgement on resulting or constructive trusts can be a lengthy and costly legal battle. The Basic Deed of Trust does not have provisions to handle the mortgage repayments, however the Silver Deed of Trust does.

"What happens when you sell?"

When you sell you use your Basic Deed of Trust to confirm your individual joint owner's share of any gain or loss associated with the property.

The Basic Deed of Trust is used by the selling solicitor. It is important to note that property prices can go up as well as down so if you do make losses, then all joint owners are liable in direct proportion to their shares in the property.

The Basic Deed of Trust example on sale:
Jane and David buy a property together worth £250,000. Jane invests £40,000, David invests £10,000 and they get a mortgage for £200,000. With the trust deed, Jane owns a share of 80% of the property and 80% of any gain or loss on sale and David owns 20% and 20% of any gain or loss on sale. If they share the mortgage repayments 50:50, under their agreement, this doesn't increase or decrease either of their shares in the property. If you are concerned about any party ceasing to make the agreed mortgage repayments or that you are paying off different shares of the mortgage and want to reflect this with a greater ownership share on sale, then you should potentially get the Silver Deed of Trust.

"What happens if I want to sell and the other joint owner doesn't?"

Either joint owner can sell at any time. If one party wants to sell then they must give written notice to the other joint owner/s who have rights of first refusal to buy the share of the property. If the other joint owner/s cannot afford to buy the share then the property is placed on the open market through an estate agent seeking the best price available.

Beware Early Mortgage Redemption charges!
If you have a mortgage with a fixed initial mortgage term then mortgage lenders include an Early Mortgage Redemption charge if you change your mortgage or settle it in full during this time. The cost can be in the thousands so be careful when looking to sell before your initial mortgage term expires.

"Do I have to share the property 50:50?"

No. You can have any share you decide between yourselves. This is explained in this article: Can you have unequal shares in a property?

Remember that the split you agree between yourselves determines how any gains from the property including rental income are to be distributed, so if you own 10% of the property, then you are due 10% of any rental income.

Many couples who agree to pay 50:50 mortgage repayments, but have different deposit amounts choose to refund the deposits paid, and then split any gain in the property 50:50. If there is no gain and you make a loss, then your deposits are refunded less your 50:50 contribution to the loss.

"What happens if you pay different shares for repairs and/or renovation?"

When your property is repaired and/or renovated, and its value is thereby increased, any person who contributes towards the costs of such repairs or renovations will be entitled to an interest in the land by way of a resulting trust proportionate to the extent to which the increase was attributable to their contribution. Improvements made much later than the date of purchase may give rise to a Constructive Trust.

It is important to note that only improvements to the property that increase the purchase price are included (this would normally exclude painting, new kitchens/bathroom).

For example: Jane and David buy a property worth £100,000. David spends £50,000 developing the property and the property is now worth £200,000, £100,000 more than before. David alone would be entitled to the value of the increase due to the development.

To obtain judgement on resulting or constructive trusts can be a lengthy and costly legal battle. The Basic Deed of Trust does not have provisions to handle the matter of repairs or renovations, however the Silver Deed of Trust includes this.

In the case Drake v Whipp  Mrs Drake and Mr Whipp left their spouses with the intention of buying a home and living together. They purchased a barn at a cost of £62,500 with the intention of converting it into a dwelling and living in it; £25,000 (40%) was paid for by Mrs Drake and £37,500 (60%) by Mr Whipp. Mr Whipp was the sole legal owner of the barn and they did not formally set out their intentions in an express deed of trust.

The barn conversion cost £129,000 of which Mrs Drake contributed £13,000 (10%) and Mr Whipp £116,000 (90%). They both worked on the conversion, of which he provided 70% to her 30% of labour.

Mr Whipp broke up with Mrs Drake and formed a relationship with another woman. Mrs Drake bought an action for an order of sale and division of the proceeds in equal shares. The trial judge held that there was no common intention and therefore applied a resulting trust. However, he allowed the respective contributions to the conversion to be taken into account rather than just the contributions to the purchase price. Consequently, she was entitled to a 19.4% share of the property. She appealed contending that the judge was wrong to take into account the contributions to the conversion under a resulting trust.

The appeal was upheld: Mrs Drake was entitled to one third of the beneficial interest. The trial judge was wrong to conclude there was no common intention since both parties intended that she would take a share. She assumed it would be equal, however he was of the opinion it would be in proportion to her contribution. There was no requirement that they had to agree on the extent of the share. Once a common intention has been found the court can take into account a wider range of dealings and is not confined to financial contributions.

"Does paying the costs of purchase increase your interest in the property?"

Yes, it can do. In our Silver Deed of Trust we include a formula that accounts for the costs of purchase such as solicitor's fees, removal costs and stamp duty. The more you pay towards the costs of purchase, the greater your share of any gain or loss will be.

If you opt for our Basic Deed of Trust you may still be able to seek a greater share of the sale proceeds due to an implied Constructive Trust, however this will need to be through legal action. In Curly v Parkes, the Court of Appeal held that neither the payment of solicitor's fees and expenses, nor the payment of removal costs, were able to give rise to a presumption of resulting trust. They may, however, be relevant for the purpose of a constructive trust.

"Does paying house expenses increase your interest in the property?"

Not unless it is a substantial sum of money which could lead to the imposition of a constructive trust. The Basic Deed of Trust states your agreed intentions towards paying outgoings.

In the case Burns v Burns, Mr and Mrs Burns lived as husband and wife and in 1963 Mr Burns bought a house in his sole name and he solely paid towards the purchase price and the mortgage. In 1975 Mrs Burns used her earnings to pay the rates, telephone bills and various other chattels for the house. In 1980 they split and Mrs Burns claimed to have an equitable interest in the house due to her contributions.

The Court of Appeal held that she was not entitled to an interest by way of a resulting trust because she had 'made no direct contribution to the purchase price'. Contributions to household expenses do not give rise to a presumption of resulting trust, however they may, if substantial, constitute sufficient detriment to lead to the imposition of a constructive trust.

"What happens if we get married or have children?"

You should review the agreement and see if the trust deed is still fit for purpose. When you get married or have children you may change your intentions towards each other. You should speak to a solicitor if you wish to protect your interests before you get married or have children.

"Can I get the Basic Deed of Trust after I have purchased?"

Yes. You'll need the consent of all the joint owners as to what the current value of the property is and what your agreed share percentage is at the point of signing. You'll then also need to get a solicitor to register the restriction against the property.

"Do I need a will?"

Yes. As tenants in common your share of the property passes to your estate on death. You will need to have a will drafted by the time you exchange contracts and this will state how you want your estate to be distributed when you die. The cost for our solicitor to draft your will is £180 INC VAT or a mirrored will is £299. Click here to read more about drafting wills

"Can I own a share in the property if I don't invest any money?"

The Basic Deed of Trust doesn't allow for you to have a share of the property if you haven't invested a deposit. However, you may be able to gain an interest in the property by being a part of the mortgage at the outset (Resulting Trust, see above), or by paying mortgage repayments and not being on the mortgage (Constructive Trust, see above).

Obtaining a judgement on resulting or constructive trusts can be a lengthy and costly legal battles. The Basic Deed of Trust does not have provisions to handle the inclusion of your payment towards mortgage repayments increasing your share in the beneficial interest of the property. If you require this then you should review the Silver Deed of Trust.

Do you need a Deed of Trust?

We have a specialist Deed of Trust Solicitor, Claudine Boast, who is able to help draft a standard or bespoke deed of trust. The basic deed of trust is most commonly used when:

  • Buying a property jointly with a long-term or married partner
  • After changing a property from joint tenants to tenants in common to declare beneficial interest for tax purposes

The cost of the Basic Deed of Trust is £240 Inc VAT and takes 1 to 3 days to create (depending on how quickly you return your completed documentation).

What is the Deed of Trust Process?

    1
    Call 0333 344 3234 (local call charges apply) and make payment for your chosen Deed of Trust
    2
    We email you and you return:
  • your intentions sheet for the drafting of the deed
  • your ID and proof of address for each of the parties within the deed
    3
    You are emailed an Excel Spreadsheet that is an illustration of your intentions. Please note:
  • this is only an example and property prices can go down as well as up
  • your home may be repossessed if you do not keep up repayments on your mortgage
  • this is not financial advice and you should speak to a financial advisor if you wish to obtain financial advice
    4
    You are emailed your completed Deed of Trust and we include one free revision within the fee paid.

The full process from receipt of your intentions & ID to you receiving via email the Deed of Trust normally takes 1 to 2 working days.

Get a Deed of Trust *
* Fixed Fee – Standard or Bespoke – Fast Turnaround (deeds issued within 1 to 3 days after instruction)



Related News Articles

 
Independent Legal Advice
05/11/2018
Joint Tenancy Definition
16/08/2017
Silver Shared Ownership Protection
15/12/2017
Tenants In Common Definition
19/10/2017
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