Impossible calculation of ownership in deed of trust

Qwerty456

Help! My partner and I imminently complete on a property but cannot agree how to fairly divide ownership as tenants in common. The property is £437k which we funded with a £250k joint mortgage. The rest of the capital I was able to raise by remortgaging my first property to an interest only mortgage as it had gone up in value. In addition I am solely paying for the stamp duty of £24,950 (my partner also has a flat so it's second property stamp duty) and i will be paying for the initial work to make it habitable for us and our children estimated to be around £8k. It's been a long drawn out purchase in difficult circumstances and we have been talking of splitting up (!) But having already exhanged and paid the deposit of £43,700 (me), we need to agree on how we will divide ownership at the point of signing contracts on completion for an uncertain future. However I'm anxious that all financial risk is on me alone - he has threatened not to complete if he doesn't consider the deal fair which would lose my deposit. He also has historically stopped paying his share of co-purchases such as the car we agreed to buy together so I want our deed of trust to be as watertight as possible. Any advice would be welcome

Tom99

[FONT=Verdana, sans-serif]Total cost of property £437,000 + SD £25k + work £8k = £470k (plus solicitor?)[/FONT]
[FONT=Verdana, sans-serif]Your deposit = 437 – 250 + 25 + 8 = £220k[/FONT]
[FONT=Verdana, sans-serif]Partners deposit = £0[/FONT]
[FONT=Verdana, sans-serif]Mortgage shared equally = £250k[/FONT]

[FONT=Verdana, sans-serif]You are buying 220/470= 46.8% of property outright.[/FONT]
[FONT=Verdana, sans-serif]
[/FONT][FONT=Verdana, sans-serif]Your deed of trust should say something like this:[/FONT]
[FONT=Verdana, sans-serif]
[/FONT][FONT=Verdana, sans-serif]On the sale of the property and after paying the sale costs and redeeming the mortgage the proceeds of sale shall be split as follows:[/FONT]
[FONT=Verdana, sans-serif]Party A – 46.8% of the gross sale price less costs of sale[/FONT]
[FONT=Verdana, sans-serif]The remainder – Split 50%/50% between Party A and B[/FONT]

[FONT=Verdana, sans-serif]The above formula is dynamic and the exact %age of the net proceeds each party gets will vary over time as the house increases in value and the mortgage is paid off.[/FONT]
[FONT=Verdana, sans-serif]
[/FONT][FONT=Verdana, sans-serif]Eventually when the mortgage is paid off the house will be owned:[/FONT]
[FONT=Verdana, sans-serif]Party A – (220/470 + 250/470*0.5) = 73.4%[/FONT]
[FONT=Verdana, sans-serif]Party B – (0/300 + 250/470*0.5) = 26.6%[/FONT]

[FONT=Verdana, sans-serif]The above should be fine if you are going into the partnership with long term intentions, however if you were to split and assume disposal costs of say 1.25% you would need to sell for £476,000 (+9%) in order for you to get your full deposit back[/FONT]
[FONT=Verdana, sans-serif].[/FONT]
[FONT=Verdana, sans-serif](£476,000 - £476,000*1.25%)*46.8% = £220,000[/FONT]
[FONT=Verdana, sans-serif]
[/FONT][FONT=Verdana, sans-serif]If you had to sell for the same price of £437,000 you would get:[/FONT]
[FONT=Verdana, sans-serif]
[/FONT][FONT=Verdana, sans-serif](£437,000 - £437,000*1.25%)*46.8% = £202,000 but there will only be £181,500 in the pot[/FONT]
[FONT=Verdana, sans-serif](£437,000 - £437,000*1.25% - £250,000) = £181,500 so you will lose £38,500 which is essentially the original stamp duty and the sale costs.[/FONT]

[FONT=Verdana, sans-serif]I don't know if it is possible, within a deed of trust, to provide for the two parties to share a loss or whether it can only ever say how the net proceeds of a sale are to be split.[/FONT]

BrassicWoman

Qwerty456 wrote: »

. He also has historically stopped paying his share of co-purchases such as the car we agreed to buy together so I want our deed of trust to be as watertight as possible. Any advice would be welcome

I would buy it in just your own name...

getmore4less

^^^^^^^^^^^^^^^^

it is not just the share at purchase time, you are going to need a can't pay won't pay clause as well and triggers to get out if it turns into a mess.

The can't pay won't pay can be done a couple of ways one involves values and a lot of messing about with numbers.

A simpler approach is to deal with the mortgage as 2 virtual pots that you are each responsible for.
You already have another your debt on your other house which you pay separately you just deals with this mortgage the same way.

For your example what you do is treat the mortgage as two £125k loans.

Any payments you make pays off bits of your one
Any payments the OH makes pays bits of theirs.

if any one pays of theirs completely and needs to pay the others then the debt of the other starts to go up.

These are easy calculations as they are just dealing with debt and payments no account of house values.
Also allows for differential overpayments.

Then when you come to split the proceeds

On the sale of the property and after paying the sale costs and redeeming the mortgage the proceeds of sale shall be split as follows:
Party A – 46.8% of the gross sale price less costs of sale
The remainder – Split 50%/50% between Party A and B

becomes something like

On the sale of the property and after paying the sale costs
the net proceeds (before paying off the mortgage)of sale shall be split as follows:
Party A – 46.8%
The remainder – Split 50%/50% between Party A and B

Party A and B are responsible for their share of the outstanding mortgage.

The ownership shares do not change throughout but the debt owed does.

If this none payment is likely to be permanent then an adjustment of ownership is probably worth considering at that point.


You are also going to need maintenance/improvement clauses that determine the share of those costs.

Ideally they should be at the % of ownership as this keeps ownership % the same throughout the term(not accounting for the won't pay) if you don't so it at those % then the calculations get very messy involving values again.

Tom99

getmore4less wrote: »

On the sale of the property and after paying the sale costs
the net proceeds (before paying off the mortgage)of sale shall be split as follows:
Party A – 46.8%
The remainder – Split 50%/50% between Party A and B
Party A and B are responsible for their share of the outstanding mortgage.

[FONT=Verdana, sans-serif]The above formula is one I would have liked to adopt but both solicitors I approached would only agree to a DOT which set out how the net proceeds after sale costs and redeeming the mortgage were to be split.[/FONT]
[FONT=Verdana, sans-serif]After all that is all the money you will have available to split unless party B puts more cash on the table prior to the sale completing.[/FONT]
[FONT=Verdana, sans-serif]However I don't think the above formula would be invalid, if you can find someone to write it for you. If a sale was proceeding and party B did not come up with the cash then in all likelihood party A would still go ahead with the sale and try to recover a debt from party B.[/FONT]

silvercar

he has threatened not to complete if he doesn't consider the deal fair which would lose my deposit. He also has historically stopped paying his share of co-purchases such as the car we agreed to buy together so I want our deed of trust to be as watertight as possible. Any advice would be welcome

and we have been talking of splitting up (!)

Buy in your name alone.

If you split up, claim maintenance for the children.

Flugelhorn

If he threatens not to complete after exchange, can you complete on your own?

getmore4less

Tom99 wrote: »

[FONT=Verdana, sans-serif]The above formula is one I would have liked to adopt but both solicitors I approached would only agree to a DOT which set out how the net proceeds after sale costs and redeeming the mortgage were to be split.[/FONT]
[FONT=Verdana, sans-serif]After all that is all the money you will have available to split unless party B puts more cash on the table prior to the sale completing.[/FONT]
[FONT=Verdana, sans-serif]However I don't think the above formula would be invalid, if you can find someone to write it for you. If a sale was proceeding and party B did not come up with the cash then in all likelihood party A would still go ahead with the sale and try to recover a debt from party B.[/FONT]

if you can say in the first part, A getting a % of gross sale before mortgage that falls foul of the "it could be less than the net proceeds" just as much as having it on the second part.

if they let you do part A like that then they did not comply with their own statement.

agrinnall

I would suggest getting some relationship advice before proceeding, the way you describe it doesn't sound like a suitable basis for sharing a large financial commitment.

Qwerty456

Thank you for the advice - it is much appreciated. Relationship counselling duly underway but our completion is imminent. We are working towards a 75/25 split but is there a way to word it to reflect that OH portion is in his share of mortgage and any increase in value thus being able to separate/protect the equity I've invested from any claims made on his business for example. This is painting a bleak picture but i want to understand all possibilities.

Tom99

Qwerty456 wrote: »

Thank you for the advice - it is much appreciated. Relationship counselling duly underway but our completion is imminent. We are working towards a 75/25 split but is there a way to word it to reflect that OH portion is in his share of mortgage and any increase in value thus being able to separate/protect the equity I've invested from any claims made on his business for example. This is painting a bleak picture but i want to understand all possibilities.

Yes use the example I gave above:

[FONT=Verdana, sans-serif]On the sale of the property and after paying the sale costs and redeeming the mortgage the proceeds of sale shall be split as follows:[/FONT]
[FONT=Verdana, sans-serif]Party A – 46.8% of the gross sale price less costs of sale[/FONT]
[FONT=Verdana, sans-serif]The remainder – Split 50%/50% between Party A and B[/FONT]