Tenants in Common, unequal deposits, no deed of trust, going wrong!

Wishment

getmore4less said:

Deleted_User said:

As far as I know the courts can overturn the ownership split if there has been a marked changed in how the property was intended to be used.   For instance if A&B lived together and B moved out and didnt pay anything then this would be taken into account by the courts.  

However,  in this instance there has been no alteration of how the property was intended to be used.  A was intending to live there and B wasn't. A was to pay the costs and B wasn't.   So the situation that is in real life mirrors what the initial intention was.   So after that there is only a signed document saying it is 50:50 ownership.   So I cant see why a court would go against B being entitled to 50% of whatever equity there is.  Unequal deposits is more common than not in my experience

The question of independent legal advice appears a red herring as A was intending to hold greater rights over the property than B. So if anyone should have had independent advice documented then it should have been B.   

A lack of understanding isnt a defence can evidence that concerns were raised and ignored by the solicitor.   The solicitor emailing B and copying in A appears fairly standard practice when dealing with multiple people.   I assume at some point the solicitor obtained confirmation from A that she wanted to proceed with the transaction and was happy to exchange and complete?  

A is the one that  needed independent advice as they got done over with the deal.

The capital input by B bought a small proportion of the property but a much higher proportion of the uplift.

Without the mortgage size not possible to determine a fair distribution.

getmore4less, this is what I am struggling with.  B put in approx 6.5% of the property's value originally.  Mortgage originally £140k now £120k.  It seems unfair that B can now demand sale and get a return of over 100% on her investment after 7 years, having not paid a penny in the interim period.  Where do I sign up to get this kind of deal?

[Deleted User]

I meant that if A's plan was to be put in place then it should have been B having independent legal advice (as in that case B would have benefitted less than A).    In reality there are limits to what lenders require so no one would have made anyone get ILA.   For instance one take on it is:

• The security being provided is direct (i.e. where all owners are borrowers) and there is a difference of more than £50,000 between one or more individual owners the owner benefitting least will require ILA.

In addition to this, quite alot of lenders wont allow the mortgage to complete if the ownership split is unequal.   So maybe there is more to this than you know. Perhaps they were told that it had to be 50:50 for the mortgage

 

anselld

Wishment said:

getmore4less said:

Deleted_User said:

As far as I know the courts can overturn the ownership split if there has been a marked changed in how the property was intended to be used.   For instance if A&B lived together and B moved out and didnt pay anything then this would be taken into account by the courts.  

However,  in this instance there has been no alteration of how the property was intended to be used.  A was intending to live there and B wasn't. A was to pay the costs and B wasn't.   So the situation that is in real life mirrors what the initial intention was.   So after that there is only a signed document saying it is 50:50 ownership.   So I cant see why a court would go against B being entitled to 50% of whatever equity there is.  Unequal deposits is more common than not in my experience

The question of independent legal advice appears a red herring as A was intending to hold greater rights over the property than B. So if anyone should have had independent advice documented then it should have been B.   

A lack of understanding isnt a defence can evidence that concerns were raised and ignored by the solicitor.   The solicitor emailing B and copying in A appears fairly standard practice when dealing with multiple people.   I assume at some point the solicitor obtained confirmation from A that she wanted to proceed with the transaction and was happy to exchange and complete?  

A is the one that  needed independent advice as they got done over with the deal.

The capital input by B bought a small proportion of the property but a much higher proportion of the uplift.

Without the mortgage size not possible to determine a fair distribution.

getmore4less, this is what I am struggling with.  B put in approx 6.5% of the property's value originally.  Mortgage originally £140k now £120k.  It seems unfair that B can now demand sale and get a return of over 100% on her investment after 7 years, having not paid a penny in the interim period.  Where do I sign up to get this kind of deal?

... but A and B both needed somewhere to live.   On a like-for-like basis B has had the costs of living elsewhere in an equivalent size property for the last 7 years.

Thrugelmir

Wishment said:

getmore4less said:

Deleted_User said:

As far as I know the courts can overturn the ownership split if there has been a marked changed in how the property was intended to be used.   For instance if A&B lived together and B moved out and didnt pay anything then this would be taken into account by the courts.  

However,  in this instance there has been no alteration of how the property was intended to be used.  A was intending to live there and B wasn't. A was to pay the costs and B wasn't.   So the situation that is in real life mirrors what the initial intention was.   So after that there is only a signed document saying it is 50:50 ownership.   So I cant see why a court would go against B being entitled to 50% of whatever equity there is.  Unequal deposits is more common than not in my experience

The question of independent legal advice appears a red herring as A was intending to hold greater rights over the property than B. So if anyone should have had independent advice documented then it should have been B.   

A lack of understanding isnt a defence can evidence that concerns were raised and ignored by the solicitor.   The solicitor emailing B and copying in A appears fairly standard practice when dealing with multiple people.   I assume at some point the solicitor obtained confirmation from A that she wanted to proceed with the transaction and was happy to exchange and complete?  

A is the one that  needed independent advice as they got done over with the deal.

The capital input by B bought a small proportion of the property but a much higher proportion of the uplift.

Without the mortgage size not possible to determine a fair distribution.

getmore4less, this is what I am struggling with.  B put in approx 6.5% of the property's value originally.  Mortgage originally £140k now £120k.  It seems unfair that B can now demand sale and get a return of over 100% on her investment after 7 years, having not paid a penny in the interim period.  Where do I sign up to get this kind of deal?

Without B. Then A  couldn't have undertaken the transaction in the first place.  Hindsight is great in making reflective observations. The situation now is what it is. The crux lies at the outset and the failure to dot the i's and cross the t's to tie the transaction down with a legal agreement. 

pinkshoes

A is a muppet.

Regardless of whether A wants to move or not, it would be much more straight forward to just to sell the property and learn from the mistake.

theoretica

Imagine two separate houses - A owned and lived in one, of course she paid all the mortgage and upkeep etc - and all the equity is hers at the end.  B owned and rented out the other - and the rent paid for the mortgage, upkeep etc and all the equity was hers at the end ((less capital gains).  All fine, not controversial.   But in this case there were two parts of the same home with A owning only one part. So to me A paying all the mortgage etc instead of any rent does not seem unfair - maybe A should get their extra £12k deposit back - but A could not have lived there without B's investment and A is presumably better off than if they had been in a rented home all this time.

If B wants a paid for valuation and will undertake to accept it, then that seems the way to value the property.

getmore4less

Wishment said:

Thanks everyone, very helpful comments that confirm that the position is probably worse than we thought.  I completely get the point that if A cannot borrow the money she will have to sell, presumably only if B forced the point by obtaining a court order?  Does anyone know how much it would cost to obtain a court order?  

The deed of trust that wasn't signed did in fact contemplate that on sale or buying the other party out (i) the mortgage would be redeemed / an amount representing the amount of mortgage remaining would be deducted; (ii) the deposits would be paid back in the amounts put in; (iii) the total mortgage payments (capital and interest) would be deducted from the remaining equity; and (iv) the remaining equity would be divided equally.  No mention of rent at all - it was not in the contemplation of the parties.  There are lots of emails between the parties showing that this was their agreement that they wanted to document, plus additional comments from A asking about unequal deposits as she was concerned.  I think I will run the numbers again based on what would have been the case if the deed of trust had been signed. If we can then agree the valuation using a chartered surveyor that should give the right answer.  Who knows if B will accept it though.

That was a dodgy deed of trust with major flaws if implemented as described.

Major mess

There are cases where that could be used to demonstrate what the real intent of the parties and be used for distribution.

I think this comes under resulting trust law.

getmore4less

Wishment said:

getmore4less said:

Deleted_User said:

As far as I know the courts can overturn the ownership split if there has been a marked changed in how the property was intended to be used.   For instance if A&B lived together and B moved out and didnt pay anything then this would be taken into account by the courts.  

However,  in this instance there has been no alteration of how the property was intended to be used.  A was intending to live there and B wasn't. A was to pay the costs and B wasn't.   So the situation that is in real life mirrors what the initial intention was.   So after that there is only a signed document saying it is 50:50 ownership.   So I cant see why a court would go against B being entitled to 50% of whatever equity there is.  Unequal deposits is more common than not in my experience

The question of independent legal advice appears a red herring as A was intending to hold greater rights over the property than B. So if anyone should have had independent advice documented then it should have been B.   

A lack of understanding isnt a defence can evidence that concerns were raised and ignored by the solicitor.   The solicitor emailing B and copying in A appears fairly standard practice when dealing with multiple people.   I assume at some point the solicitor obtained confirmation from A that she wanted to proceed with the transaction and was happy to exchange and complete?  

A is the one that  needed independent advice as they got done over with the deal.

The capital input by B bought a small proportion of the property but a much higher proportion of the uplift.

Without the mortgage size not possible to determine a fair distribution.

getmore4less, this is what I am struggling with.  B put in approx 6.5% of the property's value originally.  Mortgage originally £140k now £120k.  It seems unfair that B can now demand sale and get a return of over 100% on her investment after 7 years, having not paid a penny in the interim period.  Where do I sign up to get this kind of deal?

A typical equitable share would be B gets 6.5% of the property back when they cash out.
You might add a bit for the liability risk associated with being on the mortgage.

Annisele

I can think of a few different ways to work this out in a potentially fair way, but all of them end with B getting quite a lot more than £25k.

I'm assuming the equity now is £111k, because you said equity was £75k after deducting deposits. So, some possibities:

• Straight 50% split: A should pay B £55,500 (half of £111k).
  
• Everybody gets their deposit back, then they split the remainder 50/50 - A should pay B £49.5k (£12k plus half of £75k).
• Everybody gets their deposit back, A gets back the capital she paid towards the mortgage, and then they split the remainder 50/50: A is assigned £71.5k of the equity (£24k + £20k + £27.5k) of the equity, then A pays B the other £39.5k.

In general I don't think it's fair to take the mortgage interest into account. I know the unsigned deed of trust said it would be - but that just doesn't sound sensible. Taken to extremes, if the mortgage ran to a 25 year term I'd expect A's interest costs to be higher than the original amount of the mortgage. And deducting the interest means A essentially gets to live for free, at B's expense.

I also don't think it's fair to take the costs of improvements into account. If A spent £10k on a new kitchen, that wouldn't necessarily have added £10k to the value of the property. (There is an argument that maintenance and improvement costs should have been shared 50/50, but I don't see any argument for making B shoulder all of them.)

If I was B, and if I agreed with A about the valuations, I'd be wanting to start negotiations at £55,500. It sounds as though that's what the agreement ended up being, regardless of what was discussed earlier. So I'd be reaonabley confident about getting £55.5k less costs if this did go to court.

If I was A, I'd probably want to be starting negotiations around the £39.5k mark. I'd use the argument that the mortgage could have been interest only, so I should get to keep my capital repayments.

I do appreciate that it's relatively common in these sorts of scenarios for the guy putting in the 6.5% to agree that he'll get 6.5% when he cashes out (which here would be around £16k). But the reason I don't thikn that would be fair here is that B was clear from the beginning that they were going into this deal because they wanted half the equity. B did not sign up to only get 6.5%.

Wishment

Annisele said:

I can think of a few different ways to work this out in a potentially fair way, but all of them end with B getting quite a lot more than £25k.

I'm assuming the equity now is £111k, because you said equity was £75k after deducting deposits. So, some possibities:

• Straight 50% split: A should pay B £55,500 (half of £111k).
  
• Everybody gets their deposit back, then they split the remainder 50/50 - A should pay B £49.5k (£12k plus half of £75k).
• Everybody gets their deposit back, A gets back the capital she paid towards the mortgage, and then they split the remainder 50/50: A is assigned £71.5k of the equity (£24k + £20k + £27.5k) of the equity, then A pays B the other £39.5k.

In general I don't think it's fair to take the mortgage interest into account. I know the unsigned deed of trust said it would be - but that just doesn't sound sensible. Taken to extremes, if the mortgage ran to a 25 year term I'd expect A's interest costs to be higher than the original amount of the mortgage. And deducting the interest means A essentially gets to live for free, at B's expense.

I also don't think it's fair to take the costs of improvements into account. If A spent £10k on a new kitchen, that wouldn't necessarily have added £10k to the value of the property. (There is an argument that maintenance and improvement costs should have been shared 50/50, but I don't see any argument for making B shoulder all of them.)

If I was B, and if I agreed with A about the valuations, I'd be wanting to start negotiations at £55,500. It sounds as though that's what the agreement ended up being, regardless of what was discussed earlier. So I'd be reaonabley confident about getting £55.5k less costs if this did go to court.

If I was A, I'd probably want to be starting negotiations around the £39.5k mark. I'd use the argument that the mortgage could have been interest only, so I should get to keep my capital repayments.

I do appreciate that it's relatively common in these sorts of scenarios for the guy putting in the 6.5% to agree that he'll get 6.5% when he cashes out (which here would be around £16k). But the reason I don't thikn that would be fair here is that B was clear from the beginning that they were going into this deal because they wanted half the equity. B did not sign up to only get 6.5%.

Annisele thank you very much for this.  Reading the other comments I had just about got there using the same scenarios.  I agree with you about the interest and the costs of improvement are under £4k so can be excluded.  B was indeed very clear she wanted 50% even though she referred to it as an investment in property throughout the lead up to the purchase.  Thanks for helping me to see this differently.  I am a retired solicitor but not one that did much property law!  Ultimately this now boils down to what A can borrow and if she cannot negotiate an agreement at somewhere in between £39.5k and £55.5k the house will have to be sold. Thanks again.