Tenants in Common, Unequal Share - Declaration of Trust Necessary?

Leogames

Hello, MSE Experts.

My partner and I are about to buy a house together.  I am putting in substantially more (noticeably over 75%) into the deposit than they are.  I will also be paying 50% more of the mortgage each month.  I'm fine with that.  We've been asked by our solicitor to sign (what we assume is) a common, very basic form asking whether we want to be Joint Tenants or Tenants in Common (and if the latter we then write in who owns what %).  I've explained to my partner that I'd like us to do the latter, and they're fine with that too.

However, everything I read elsewhere is saying that we should also write up a Declaration of Trust.  I know this can go into detail about what happens if our relationship were to fail, how we account for any improvements made etc.  So what I'd like to understand is, without a Declaration of Trust, is it that:

a) The % we wrote down on that first form automatically determines who owns what in the event of the house being sold.  This is irrespective of anything that has changed since we bought it, including if one of us had started putting more money in over time than we'd first expected etc.
b) The % on this form ultimately means nothing because we didn't have a Declaration of Trust stating what would happen in this event.  That original % share only says what we put in, not what we'd get out and has no practical bearing on anything after we've signed it.  Legally, we'd then be starting from a point where my partner would be able to claim 50/50 ownership and therefore of any proceeds from the sale of the house etc.
c) Something else, legally complex and somewhere in between a and b

Appreciate your advice in advance.  Thank you.

[Deleted User]

Leogames said:

Hello, MSE Experts.

My partner and I are about to buy a house together.  I am putting in substantially more (noticeably over 75%) into the deposit than they are.  I will also be paying 50% more of the mortgage each month.  I'm fine with that.  We've been asked by our solicitor to sign (what we assume is) a common, very basic form asking whether we want to be Joint Tenants or Tenants in Common (and if the latter we then write in who owns what %).  I've explained to my partner that I'd like us to do the latter, and they're fine with that too.

However, everything I read elsewhere is saying that we should also write up a Declaration of Trust.  I know this can go into detail about what happens if our relationship were to fail, how we account for any improvements made etc.  So what I'd like to understand is, without a Declaration of Trust, is it that:

a) The % we wrote down on that first form automatically determines who owns what in the event of the house being sold.  This is irrespective of anything that has changed since we bought it, including if one of us had started putting more money in over time than we'd first expected etc.
b) The % on this form ultimately means nothing because we didn't have a Declaration of Trust stating what would happen in this event.  That original % share only says what we put in, not what we'd get out and has no practical bearing on anything after we've signed it.  Legally, we'd then be starting from a point where my partner would be able to claim 50/50 ownership and therefore of any proceeds from the sale of the house etc.
c) Something else, legally complex and somewhere in between a and b

Appreciate your advice in advance.  Thank you.

If you are happy with a simple % split from the off, regardless of what happens between now and your relationship breaking down/death/whatever then own as Tenants in Common with that % split.  Is that a fair way to do it?  Probably not to one party depending on when the relationship breaks down.  Search the forum, there is a plethora of threads from couples buying with unequal shares that contain examples of how a Deed of Trust can be set up.

Tom99

You cannot use a simple %age split it will not work. The DOT sets out how the net proceeds are split after sale costs and redeeming the mortgage. The formula needs to work on day2, in 5yrs time and in 25yrs time when the mortgage is paid off.

You need a 2 or 3 part formula.

Lets say the total cost including fees, stamp duty etc is £400,000. You are putting in £75,000 and your partner £25,000, you will pay 60% of the mortgage repayments.

The DOT might say something like this:

'After deducting the sale costs and redeeming the mortgage the net proceeds will be split as follows:

1 - Party A - 18.75% of the gross sale price after deducting sale costs.

2 - Party B - 6.25% of the gross sale price after deducting sale costs.

3 - The remainder to be split 60% to Party A and 40% to Party B.'

You only get to the stage where a simple %age split will do when the mortgage is paid off which in the above example would be:

Party A - 63.75%

Party B - 36.25%

Leogames

Tom99 said:

You cannot use a simple %age split it will not work. The DOT sets out how the net proceeds are split after sale costs and redeeming the mortgage. The formula needs to work on day2, in 5yrs time and in 25yrs time when the mortgage is paid off.

You need a 2 or 3 part formula.

Lets say the total cost including fees, stamp duty etc is £400,000. You are putting in £75,000 and your partner £25,000, you will pay 60% of the mortgage repayments.

The DOT might say something like this:

'After deducting the sale costs and redeeming the mortgage the net proceeds will be split as follows:

1 - Party A - 18.75% of the gross sale price after deducting sale costs.

2 - Party B - 6.25% of the gross sale price after deducting sale costs.

3 - The remainder to be split 60% to Party A and 40% to Party B.'

You only get to the stage where a simple %age split will do when the mortgage is paid off which in the above example would be:

Party A - 63.75%

Party B - 36.25%

Thank you but this isn't what I'm asking.  The % I've proposed to put down is based on the deposit, plus what we'll have paid off in 20 years.  Based on this, it's actually in my partner's best interests to leave me before this time because they'll make money!

However, what I want to know is the legal power of this % in a document which is _not_ the Declaration of Trust.  I am not asking for advice based on the % but thank you for your time on the response nonetheless.

Lokolo

Sorry this isn't going to answer the question, but why not just do it?
I have the same setup with my rental property with my other half. She owns 90% and I own 10%. Originally I had the same thought as you, surely I don't need one. It's tenants in common with a certain split. However my solicitor did one anyway and all we had to do was sign it. I could have questioned it but they said it needed to be done anyway. Wasn't going to cost me any extra so just went with it. I think it is to do with extra protection. Best to ask your solicitor for the reason. I would be interested to know!

Tom99

Leogames said:

Thank you but this isn't what I'm asking.  The % I've proposed to put down is based on the deposit, plus what we'll have paid off in 20 years.  Based on this, it's actually in my partner's best interests to leave me before this time because they'll make money!

However, what I want to know is the legal power of this % in a document which is _not_ the Declaration of Trust.  I am not asking for advice based on the % but thank you for your time on the response nonetheless.

The percentage split you give to the solicitor will be entered on the transfer document (Form TR1), part 10 'Declaration of Trust' so will have the same legal power for you to enforce as a separate DOT would have.

https://www.gov.uk/government/publications/registered-titles-whole-transfer-tr1

Leogames

Lokolo said:

Sorry this isn't going to answer the question, but why not just do it?
I have the same setup with my rental property with my other half. She owns 90% and I own 10%. Originally I had the same thought as you, surely I don't need one. It's tenants in common with a certain split. However my solicitor did one anyway and all we had to do was sign it. I could have questioned it but they said it needed to be done anyway. Wasn't going to cost me any extra so just went with it. I think it is to do with extra protection. Best to ask your solicitor for the reason. I would be interested to know!

A very valid question.  The form says "we would strongly recommend doing one.." but when I actually spoke to the solicitor, he said it wasn't necessary.  It was hard to shake off the perception 100% that they weren't being a little bit blase about this however, given the potential implications until I know what just doing the more basic form empowers.

That aside, the other reason I'm not rushing to a DoT is because I'm happy with the split we're proposing - and if that's the outright implication for anything in the future, then I don't want us both to have to dig into anything further and get right into "I'll get this and you'll get this, we'll both split X and Y, and then if you do this.. etc."

Leogames

Tom99 said:

Leogames said:

Thank you but this isn't what I'm asking.  The % I've proposed to put down is based on the deposit, plus what we'll have paid off in 20 years.  Based on this, it's actually in my partner's best interests to leave me before this time because they'll make money!

However, what I want to know is the legal power of this % in a document which is _not_ the Declaration of Trust.  I am not asking for advice based on the % but thank you for your time on the response nonetheless.

The percentage split you give to the solicitor will be entered on the transfer document (Form TR1), part 10 'Declaration of Trust' so will have the same legal power for you to enforce as a separate DOT would have.

Thanks for this - will read it now.

Tom99

Leogames said:

I don't want us both to have to dig into anything further and get right into "I'll get this and you'll get this, we'll both split X and Y, and then if you do this.. etc."

I would think you are more likely to get into that situation if you don't have a separate DOT setting out a fair way to split the net proceeds. You may end up with one party claiming the fixed %age they are getting is unfair.
 

Leogames

Thanks again.  I'd appreciate that the above isn't legal advice, but if I'd put down the vast majority of the deposit, had paid the majority of the mortgage and the form had been signed by both of us with that percentage, would there be any real legal ground for claiming that it's "unfair", all other things be equal too?

Tom99

Leogames said:

Thanks again.  I'd appreciate that the above isn't legal advice, but if I'd put down the vast majority of the deposit, had paid the majority of the mortgage and the form had been signed by both of us with that percentage, would there be any real legal ground for claiming that it's "unfair", all other things be equal too?

No neither party would. If you had fallen out and the property was going to be sold then either one of you would point your solicitor doing the conveyancing to the DOT contained in the transfer document and the solicitor would divide the net proceeds accordingly.

If you have paid say 75% of the deposit but your %age share is less than 75% then it's likely to be you who might claim it's unfair. Would you be happy to split the net proceeds according to your %age if say the property was sold in a years time?