Buying a house with someone else can be complicated, especially if you aren’t related.
So, it’s useful to put something in writing that explains the financial arrangement.
This is why a declaration of trust is a great solution.
Read on to learn what this is, how it works, and more.
What is a declaration of trust for property?
In property, a declaration of trust is a written agreement outlining the financial arrangement surrounding house ownership.
This may include details about:
- How much money each person invests
- The percentage of the house owned by each person
- What happens when the property is sold
- The process if someone wants to buy another person out.
This document gives clarity to everyone involved. It reduces misunderstandings and gives you a legal basis to challenge things in court.
A solicitor will usually help you to create this written agreement. You should also note on the Title Deeds that a declaration of trust exists.
How long does a declaration of trust last?
It depends. The declaration of trust often remains valid for as long as the parties own the property.
The contract may state how long it’s valid for. Common examples include until the sale of the house, or until certain details change (i.e. ownership).
You can end a declaration of trust if all parties agree.
Reasons to create a declaration of trust
All parties are not related
The rules of intestacy don’t apply when the parties are not related.
This means that you can’t always give your share of the property to the person you want.
Creating a document can put your wishes in writing. It’s thus useful for unmarried couples, friends living together, or strangers.
Financial protection
A declaration of trust ensures that everyone is treated fairly.
You won’t receive money that you’re not entitled to. And neither will your cohabitants.
Your share in the house will be protected if something goes wrong. This can sometimes make a difference of hundreds of thousands of pounds.
Avoid confusion
It’s common for cohabitants to misunderstand each other about how things are organised.
You may have a clear idea about ownership or share structure. But someone else could have a different perspective.
This is especially true when dividing a house after divorce, when emotions may cloud judgements.
Useful for settling disagreements
If you ever have a strong disagreement with another party involved, a declaration of trust ensures that it’s resolved once and for all.
It holds up in a court of law. If it’s been signed by all parties, it becomes binding and thus avoids unfair rulings.
Do I need a solicitor to create a declaration of trust?
It’s recommended that you bring in an experienced solicitor. They will ensure that all protocol is followed and the document is binding.
This avoids mistakes whereby the declaration of trust doesn’t hold up in court.
It’s time-consuming and challenging to create this type of document yourself.
And the other parties may be sceptical since you’ve got skin in the game. Using an independent third party gives everyone peace of mind.
How much does it cost to make a declaration of trust?
The average price is around £400, depending on the circumstances. Get quotes from several solicitors so you can compare.
Make sure you describe the circumstances because this impacts the timeframe and complexity. It also affects price.
Can I be forced into signing a declaration of trust?
No one can force you to sign a declaration of trust. If this happened, and you felt you had no choice or were misled, then you can contest it.
When you buy a share of a property, agreeing to the existing terms of a declaration of trust may be a condition.
Finding another property is the best solution if you don’t want to go along with it.
Can a declaration of trust be amended?
Yes, it’s possible to amend a declaration of trust. You’ll usually need to get a solicitor’s support with this to ensure it is binding.
A deed of variation may be needed. Or you could create a new declaration of trust.
If you can’t get agreement to amend a declaration of trust, there’s often not much you can do.
There are some cases when a family court might overrule a declaration of trust though.
This includes in the event of a divorce or civil partnership dissolution.
Reasons to amend a declaration of trust
Payment for renovations or an extension
The financial arrangement when you first bought the house may have changed today.
Maybe someone has paid for renovations or an extension. And they want a contract change to reflect this.
This means they’ll get more money when the time arrives to sell.
Someone moves out, or someone new moves in
Your declaration of trust may need to be amended if a new person moves in.
This may be to update the name. But if the terms of the agreements change, this will need to be reflected, too. It depends on what you agree.
Your mortgage repayment arrangement changes
The ownership of your house is often related to how much each person is paying on the mortgage.
But if this ratio changes between cohabitants, you’ll often want to update the declaration of trust to reflect this.
Someone has been bought out
You may want the declaration of trust to remain in place, even if one person is leaving.
This requires an update to show that another has bought someone out. But there’s still a contract in place.
Alternatives to a declaration of trust
Having a written agreement when buying a house is always desirable. But a declaration of trust isn’t the only way to do this.
Pre-nuptial agreements are common between unmarried couples. This explains what happens to all your assets and money if you separate.
You could also create a ‘tenants in common’ agreement. This applies only if you own the property in this arrangement, rather than a joint tenancy.
This document explains each person’s rights to transfer shares, sell shares, and buy other people out.
Cohabitation arrangements can also be a helpful alternative. But speak to an expert first. They can explain if it gives you the protection you need.
