Specialist conveyancing articles to inform you about conveyancing for a house or a flat; whether you already own your own home or if you are buying one. These are free to read and written by specialists in this area.

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Floating Deed of Trust - How to get a deed of Trust

12/11/2019
A floating deed of trust, also known as a commensurate share deed or a Silver deed, provides joint owners of property a more accurate way to assess the beneficial interest in a property - the money you individually own - at a specific point in time based on your contributions toward the property. 

As you'll have seen from our article about Deeds of Trust, joint owners often look to only protect their money used to buy the property in a declaration of trust; either with a fixed beneficial interest or by returning the original deposits and sharing any net proceeds thereafter equally. 

Both of these are fine if the relationship remains static and both joint owners pay their share of the costs of the property, but what happens if they don't? Who pays the mortgage if one of the joint owners moves out? Does this increase your beneficial interest? Read on for a detailed review of how to draft a deed of trust that allows for a commensurate share of the beneficial interest based on what you invest into the property and we answer below some of the most asked questions from our clients.

It is important to note that you cannot hold a property on trust in unequal or floating shares using a deed if you a registered as joint tenants. You must be tenants in common. Read more on How to change from Joint Tenants to Tenants in Common and How to confirm if you are joint tenants or tenants in common.

What money increases your floating share?

Unlike a basic declaration of trust that simply states a fixed beneficial interest, a floating deed can take into account a variety of costs linked to the property that add value and can increase your beneficial interest. Here are the top 5, however the final one is not always included:

Floating Deed of Trust

Purchase Deposit

The joint owner's individual contribution toward the deposit to purchase the property is reflected in the deed. The larger the deposit the greater your beneficial interest will be at the start.

Commensurate Share Deed

Mortgage Repayments

The joint owners can agree to share the mortgage repayments in unequal shares to allow a person paying more per month than the other to grow a greater beneficial interest in the property. It is often the case that one of the joint owners will pay more of the mortgage based on their financial position. By doing so, with a fixed share deed, the joint owner would be paying more and not getting a benefit for doing so, however with a floating deed they can see a return on their additional payments. Unlike the purchase deposits, mortgage repayments will be made on a monthly basis over a number of years so it is advisable to log the mortgage repayments so you have this to calculate you beneficial interest on sale.

Floating Deed of Trust

Renovations

Contributions to renovations or repairs that add value to the property can increase your individual financial stake in the property.These payments can be considerable - building an extension isn't cheap - so logging who paid for what is essential and within the deed this can be used to then increase a joint owner's beneficial interest. Not all renovations add value and as such don't increase your beneficial interest so read more about what renovation works add value to your home.

Floating Deed of Trust

Cost of Purchase and Sale

The costs of buying and selling the property run into thousands of pounds. You can log who paid for the stamp duty, legal fees, estate agent costs and so on in order to reflect an increase in their beneficial interest.

Floating Deed of Trust

Household bills

It is often noted within a floating deed the share by which the household bills are going to be split however it is rarely used in the calculation for beneficial ownership. This cost is seen as maintenance or upkeep, rather than increasing value. It is also hard to definitively say what costs fall into this category and who should pay for them because of the benefit they provide; broadband? insurance? food? mobile phone? Who is using these more and increasing the cost? Whilst it's important to document who pays for the household costs and in what shares, these then aren't used for calculating an increase in beneficial interest.

How is the floating share calculated?

There is a formula used within the deed that a solicitor will use to distribute the net proceeds of sale or the share transfer price. You will need to provide to the solicitor the evidence for the payments made toward the property - not all of the above are always included so you agree with the solicitor who drafts the deed for you which of the above you want to take into consideration.

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Floating deed of trust Vs Fixed Share


Floating Deed of Trust

 

Fixed Share Deed of Trust

 

Pros

Cons

Pros

Cons

  • More reflective beneficial interest based on your contribution
  • Flexible to allow for changes in relationship
  • Deed of Trust costs more
  • Can over complicate your relationship with your joint owner/s leading to disagreements
  • Can be complicated to work out your beneficial interest
  • Requires a specialist solicitor to draft
  • Simplified so less confusion
  • Costs less to draft
  • Guarantees a fixed share on sale or transfer
  • Doesn't account for changes to relationship
  • Doesn't account for changes to payments. A joint owner could be left paying the mortgage and unable to get any of the money back from the other joint owner/s.

The greatest risk for joint owners who have a fixed beneficial interest is of something actually happening which wasn't pre-agreed in the deed. The deed will state that regardless of what actually happens, the joint owners are to benefit from the net sale proceeds in a fixed share. Let's have a look at a real life example:

Dave and Jane buy a house together worth £250,000. They have invested an equal share of the 10% deposit of £25,000 (so £12,500 each). They aren't married but have been going out for 2 years so agree to only draft a very basic deed of trust. The deed states that Dave and Jane are to share the beneficial interest equally (50/50). 

After moving in together Dave and Jane start arguing and Dave moves out. Dave stops paying any of the mortgage repayments and tells Jane that he can't afford to pay for the mortgage and pay for his rent. Jane is forced to pay all of the mortgage repayments. 5 years later Dave and Jane agree to sell the property. Dave is still due an equal share of the net sale proceeds as per the deed of trust, even though he stopped paying toward the mortgage. If Dave and Jane had drafted a floating deed of trust then by Dave stopping paying the mortgage repayments, Jane would have grown a greater beneficial interest by paying Dave's share.

Frequently Asked Questions

What is the cost of a deed of trust?

A floating deed of trust costs more than a basic deed of trust due to the complex formula to calculate the beneficial interest. The solicitor drafting the deed will also need to explain how it works in more detail. 

The cost of our floating deed of trust starts from £399 INC VAT however we can help with more complex agreements than add in additional clauses in relation to the cohabitation and for these bespoke deeds we provide a fixed fee quote based on your individual circumstances. Call our specialists now to get a free no obligation quote for your deed - 0333 344 3234 (local call charges apply)

Can you get a floating deed of trust if you have a basic deed of trust?

You can only have one deed of trust per property so if you have a basic or fixed share deed of trust and want to change it to a more commensurate share deed like a floating deed then our solicitor can help. We will need to revoke he original deed ensuring the parties to it agree and that the terms of the deed are adhered to and then draft the new deed and this will be signed and witnessed by the joint owners.

Can I get a deed of trust with a mortgage?

Yes you can; in some situations you might have to consult your mortgage lender about what your plans are but your solicitor will advise you should this be the case.

What happens if a joint owner stops paying the mortgage?

Regardless of what your deed states, every party whose name is on the mortgage deed is jointly and severally liable for the mortgage debt. You can agree to share the mortgage in unequal shares, however if any of the joint owners doesn't pay their share then the other joint owners must pay it for them. Failing to pay your mortgage will adversely affect all of the joint owners' credit ratings and your home may be repossessed by your mortgage lender.

Whilst this is an unfortunate situation to be in and it may cause you to be financially worse off covering the joint owner's share of the mortgage, it does mean that with a floating deed your beneficial interest increases. A greater beneficial interest means that you will get more of any profit on sale.

Can you force a sale?

This depends on how the deed is drafted, however most deeds have an exit clause for the joint owners to exercise in the event of one of the parties wanting to sell. Included within the exit clause will be a right of first refusal for the joint owner/s of the property to buy out each other's shares. If the joint owners can't afford to pay for the share or choose they don't want to then the property will be sold on the open market for the highest price achievable in an arm's length transaction - i.e. not sold undervalue.

Can anyone draft a deed of trust?

Only a solicitor can draft a deed of trust. It is a criminal offence for anyone other than a solicitor to draft and sell you a deed of trust.