First Time Buyers, Tennants in Common, Trust Deed advice....

Adam182

Hi everyone, just wanted to run this by people who will most likely have better knowledge than myself.

Me and my girlfriend have had an offer accepted on a property (that requires updating throughout) and plan on signing as Tenants in Common, we obviously don't plan to separate but having read the horror stories online I thinks its a good idea to protect our individual investment to make things easier should anything go south between us in the future.

After doing my research I propose a Trust Deed be written up that would state:

Should the house need to be sold in the event of separation first refusal would go to the other should either of us want to remain in the property.

Whatever percentage each of us put down for the deposit we would get that percentage back from the final value of the house. (I assume keeping it as a % rather than the exact figure initially deposited would keep it fair with regards to the value of the house either increasing/decreasing)

The remaining % of the house would then be split at a percentage at which each of us had invested into the property through things such as mortgage/maintenance, for instance if we both paid the mortgage at 50/50 and any maintenance costs the same 50/50 then the remaining percentage of the house sale value would also be split 50/50.

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Does this sound fair to everyone here? does anyone think I am missing anything out? would this even be possible to incorporate into a Trust Deed? Forgive me if anything I am suggesting seems silly as prior to this week I had no knowledge of any of this.

Any feedback is much appreciated, Thankyou

Adam182

Any takers?

Pixie5740

It's something that's been discussed many on the forum before. If you try searching for "declaration of trust," or "deed of trust," or perhaps even just "trust," you will find threads by couples in a similar situation.

It doesn't really matter how we think your declaration of trust be drawn up what matters is what you and your girlfriend find fair and equitable. Alternatively you could just throw caution to the wind and get married. Should I start hat shopping?

da_rule

The only comment I would make is that if you are going to suggest splitting the proceeds based on the contribution to the deposit then this may not be fair if you are paying the mortgage in equal shares.

steeeb

da_rule wrote: »

The only comment I would make is that if you are going to suggest splitting the proceeds based on the contribution to the deposit then this may not be fair if you are paying the mortgage in equal shares.

They mean for example a 10k deposit on a 100k house is 10% so if they later sold for 200k the person who put in 10k would get 20k then the remaining 80k split based on contributions for mortgage and maintenance.

(It somewhat makes the deposit more valuable than contributions but many people do safeguard the deposit).

Seems fair to me.

You might want a joint bank account and take both maintenance costs and mortgage out of it - its then easy to work out contributions if needed in the future.

Do note that bills etc could be argued as contributions as can not working or working part time due to having a child etc but one would assume with a child in the mix the child would come before trying to work out exactly who contributed what.

deFoix

Make sure you keep itemized receipts for everything you pay for and towards the flat and other living expenses and if you can get your gf to sign accounts also this would be good. Probably best to keep a hidden offshore bank account in the Philippines also to keep spare cash out of sight.:rotfl:

getmore4less

It's a good start but has some flaws especially the contributions bit.

If is far better to separate the ownership from the debt once you have them set up.

exactly what you end up with will depend on the cash flows available which you need to guess at the start to get a balance.
if the re is a big difference in cash and income in one direction it may be hard to get 50:50 ownership.

Decide what the initial ownership will be based on the deposit and the initial share of the debt.

Then any input to maintenance improvements should be at that % of ownership so the ownership never changes.

maintenance/improvements should not be lumped with debt payments.

Adjusting house shares gets messy with valuations far easier to do it once and never change it.

The debt, you each have a share of that and pay it off independently of the equity you own, very easy to make adjustment if you want to change how much each of you pay and track the outstanding debt you each have.

when you sell you get the ownership % from the gross proceeds after costs and each pay your share of the debt from that.

keep the living/running costs separate they are independent of the ownership costs.

getmore4less

An approach that can help is to break it down.

Start by how would you deal with the maintenance/improvements costs if you had bought without any debt.

if you owned 50:50 you would probably agree to contribute 50:50 etc. keeping the ownership the the same.

why does getting debt change that?

if you borrowed from different friends or mums and dads effectively paying cash would you then start lumping in these other costs in with those repayments?

Change the debt to a mortgage does not change that.

Adam182

Thanks for the great replys everyone.

The problem with keeping the maintenance costs at the same fixed % (50/50 for instance) of the ownership costs means that any maintenance would require both partys to have the cash ready before anything could take place (which would be the ideal situation), unless one person was willing to give up more money.

Having the shares floating would mean whichever person had extra money (through work/inheritance etc) to spare they could then take on most of the costs and not come out worse off if everything didn't go to plan in the future.

This also applies for the % of monthly mortgage repayment each could repay, floating would allow for one person to pay more over a period if the other was wanting to save a little extra for a holiday as an example.

I've read getmore4less's thoughts on Commensurate Share type deeds (and its flaws) in previous threads, at the very extremes of the spectrum it seems to fall apart but surely if you keep things somewhat similar in terms of overall individual contributions then it isn't such a bad formula? maybe I'm totally wrong though as getmore4less's knowledge is vastly superior to mine.

This article speaks of a similar situation although we have the benefit of sorting this out in our first deed of trust...

ww[dot]theguardian[dot]com/money/2017/jan/26/do-we-need-deed-of-trust-reflect-our-shares-house-purchase-

Any further feedback is as always much appreciated - Adam

getmore4less

Adam182 wrote: »

Thanks for the great replys everyone.

The problem with keeping the maintenance costs at the same fixed % (50/50 for instance) of the ownership costs means that any maintenance would require both partys to have the cash ready before anything could take place (which would be the ideal situation), unless one person was willing to give up more money.

Having the shares floating would mean whichever person had extra money (through work/inheritance etc) to spare they could then take on most of the costs and not come out worse off if everything didn't go to plan in the future.

The problem you get is valuing those extra contributions you start out 50:50 later you decide to stick £10k on some job in unequal amounts, what value do you use to make the adjustment the start value, the value before the injection, the value after the injection...

Another option is to leave the shares alone and do a side deal as a loans to each other, if it is consistently going one way then the initial shares were probably wrong.

This can be done through the mortgage debt.
There is a job that needs doing that costs £10k and only one has the money so the other needs to borrow £5k, if the debt is refactored so that £5k of the debt moves from the one with the money to be serviced by the other. no change in equity needed.

if there is foreseeable stuff that needs doing fund that upfront by borrowing more if the free cash flow from incomes will be a problem.

Offsets can be a good way to manage this

Changing the ownership % has issues because the value is variable and in many cases subjective


This also applies for the % of monthly mortgage repayment each could repay, floating would allow for one person to pay more over a period if the other was wanting to save a little extra for a holiday as an example.

the debt is fixed(in that the £1 you owe does not change in value where as the £1 of equity it bought does) so it is easy to keep a track of who owes what even if one pays off a big chunk. changing ownership based on debt reduction falls into the same trap as the other one as direct house costs, how much is any payment worth in terms of a bit of equity at the time
it can be easier to just owe less and let the other person catch up.

I've read getmore4less's thoughts on Commensurate Share type deeds (and its flaws) in previous threads, at the very extremes of the spectrum it seems to fall apart but surely if you keep things somewhat similar in terms of overall individual contributions then it isn't such a bad formula? maybe I'm totally wrong though as getmore4less's knowledge is vastly superior to mine.

This article speaks of a similar situation although we have the benefit of sorting this out in our first deed of trust...

ww[dot]theguardian[dot]com/money/2017/jan/26/do-we-need-deed-of-trust-reflect-our-shares-house-purchase-

Any further feedback is as always much appreciated - Adam

If you get the basics right in terms of equity and debt and keep them separate then for the small stuff(few £1k) in different contributions it wont make a lot of difference to the end result

if you manage bigger stuff on the debt side it means you are no doing loads of valuations unless the debt imbalance get to big and needs readjusting

One way to tackle the readjustments if they have to happen because the cashflow is not working is to do a simultaneous virtual sell and buy back to refactor the debt situation to rebalance.


eg Say you started with 50:50 on a £200k house with a £100k mortgage now one of you pays £10k for something and has paid an extra 15k of their mortgage.

The mortgage shares started at £50k and are now £55k and £30k less any capital paid off.

place is worth £230k and you want to rebalance the debt to 50:50 £42500 each

equity share £115k each less the debt, £60k and £85k with a 85k debt
new shares are £102500 and 127500 or 44.57% 55.43%

Micro managing equity shares will be a problem

Micro managing the cash side of the deal is much easier cleaner


Also if plans are long term and you can start out at 50:50 and keep it that way by having all the adjustment on the cash flow, eventually it becomes a non issue as you give up keeping track of who owes what an pool resources.

Guest101

Never understood why these aren't called deeds of mistrust.


Clearly one taking out such a deed doesn't trust their significant other to act respectably.