A deed of trust -- also known as a “declaration of trust and co-habitation”, “trust deed” or a “co-ownership agreement” -- is a legal agreement between the joint owners of property.
It may include several pieces of information, such as the amount each owner contributed towards the purchase price, their respective ownership shares, and what happens if someone dies or wants to move out or there is a dispute about how to develop the property.
A deed of trust basically reduces the risk of buying with someone else and is aimed at protecting you.
When is it advised to have a deed of trust?
If you are buying a home with your partner or friend, and you are purchasing the property as tenants-in-common, then you should see a solicitor and get a deed of trust drawn up. It may not be exactly romantic, but it could spare you a lot of pain if you ever decide to go your separate ways.
What are the benefits of having a deed of trust?
If one of you has contributed more money towards buying the property, you may decide that it is fairer to reflect this in your share of the property for example – where one owner paid 30% towards the purchase price and the other paid 70%, each party to the transaction will hold a fiscally apportioned interest in the property according to their contribution.
In addition, if the property is owned as a tenancy-in-common and one of you dies, that share will pass in accordance with the terms of the deceased’s will (or under the rules of intestacy, if they don’t have a will). This means that the surviving joint owner of the property will have no control over who owns and lives in the co-owner’s part of the property. A deed of trust can be drafted to avoid this problem by stipulating exactly what should happen to the property if a joint owner dies.
What should be agreed in a deed of trust?
Typically a deed of trust will address the following:
- the amount each owner paid towards the deposit;
- how much each party is going to contribute towards the mortgage repayments;
- the equity split if the property is sold or mortgage ends;
- how much each owner is going to contribute towards home insurance, purchasing costs (e.g., stamp duty, solicitors’ fees, searches), maintenance (e.g., decorating costs, roof repairs, etc), and improvements;
- how the property will be valued if one owner wants to sell;
- a right of first refusal among the owners in the event one party wants to sell;
- what you might do if one owner wants to sell and the other doesn’t want to;
- what you do if an owner wants to move out, but remain a co-owner of the property;
- what happens if an owner dies;
- property rules (e.g., concerning guests, maintenance, etc);
- use of common areas;
- payment of bills and taxes;
- re-mortgaging, selling, and whether leasing the property or any part of it is permitted;
- visitors (e.g., how long they can stay in the property, behaviour, etc);
- how rental income from a tenant, if any, is divided;
- how much rent a resident owner pays to a non-resident owner, if applicable;
- what happens if one party fails to make payments (where will the money come from and how will it affect each other’s contributions towards the property?);
- notice periods (to vacate, etc);
- dispute resolution, mediation, etc;
- an inventory of any new shared items of furniture and furnishings.
Who can draw up a deed of trust?
You should consult a solicitor. This is not an area where a do-it-yourself approach is recommended.