Let's go back to basic principles: buying a house is a huge investment for most people. And if you have a stake in that property, then your stake should be protected.

But the problem is, there's always scope for confusion, disagreement, and misunderstandings. In addition, the world changes, people change, and circumstances change. So you need an agreement that removes any hint of misunderstanding or ambiguity.

First, let's consider a commonly-held myth

However, you should be aware. There is a commonly-held belief that if you are a cohabiting couple, you will be protected by what is known as 'common law marriage'.

In reality, couples who are in a civil partnership or who are not married do not have any legal protections. Consequently, there is no guarantee that each party will be treated fairly should your relationship break down.

An example: your relationship breaks down

Let's say you a cohabiting couple, but your name is not on the mortgage papers. When you think about it, this happens quite often. You or your partner might have a poor credit rating or outstanding debts that make it difficult for you to obtain a mortgage.

In this case, there is absolutely no guarantee that your interests will be taken into account should your relationship break down.

Although the Land Registry keeps a record of ownership, it doesn’t take into account the specific proportions each party has contributed to a property, meaning that when it comes to selling, some stakeholders could find themselves out of pocket without a legal document recording their contributions.

Another example: who gets what?

If there's no Declaration of Trust in place, it may become a lot more difficult to determine who should be repaid what and how much they are entitled to once the property is sold.

So what is a declaration of trust?

A Declaration of Trust can prevent this type of uncertainty by clearly outlining who should be entitled to what in the event that your relationship ends.

• It is designed to remove any ambiguity around what might happen to your (and your partner's) investment in your property in the future.
• As long as the document has been prepared correctly, it's a formal, legally binding document that is made at the time of buying a property. All parties must show that they entered into and signed the agreement willingly, knowing fully what the agreement entails.
• In this instance, a Declaration of Trust protects everyone's interests in the property by clearly laying out the exact arrangement you've agreed with your partner
• It ensures that each stakeholder gets what they are entitled to, in line with their initial investment when the time comes to sell the property (or a share of it).
  
• It also lays out what should happen under different circumstances such as when all owners agree to sell the property or one owner wishes to buy out another owner.
• As with any legal document, the Declaration of Trust must meet various criteria to ensure it will be recognised by law: it must be prepared as a deed (a formal legal document, usually drawn up by a legal professional), all parties concerned must be able to demonstrate that they entered into the agreement willingly and with full knowledge of what it entailed, and it must be signed by all concerned parties, and the signing witnessed.
• It is not easily changed.

Specifics

• Detail what should and should not be included
• How much did each party contribute to the deposit on the property?
• How much does each party contribute to the monthly mortgage payments (and related expenditure)?
• How much will each party ultimately own in the property?
• What is the expected valuation of the property at the time it is put up for sale?
• How much will each party expect to receive from the sale of the property

Optional clauses

Depending on specific personal circumstances, you may want to include additional clauses. For example:

• if you have invested more in the deposit than your partner, then you could agree to receive that larger sum back alongside your agreed share of profits at the time of selling your property; or
• if your partner contributes less to the monthly mortgage repayments, then you can agree to recalculate the share ration each year so that it accurately reflects the amount each party has invested over time, as your circumstances and payments change.

If we are joint tenants, what considerations should we take into account?

• When you purchase a property as joint tenants, it is automatically assumed that each party will own an equal share in the property. In the event that your partner as joint tenant passes away, then you will inherit their share, and vice versa.
• The share cannot be passed on in a will.

If we are tenants in common, what considerations should we take into account?

• As outlined above, under a joint tenancy agreement, party owns an equal share in the property. But as tenants in common, you are each considered to own a specific share of a property.
• Each specific shareholding is recorded recorded with the Land Registry and each specific shareholding can be passed on in a will.
• Remember that if one owner passes away and there is no will in place, then the specific shareholding in the property will be subject to intestacy rules. Intestacy rules stipulate that the shareholding will not necessarily be passed to the other shareholder of the property and that it is likely that it will be passed to relatives of the deceased shareholder.
• This is what a declaration of trust can be useful for laying out the precise breakdown of the shareholding in a property. In a sense, it has the same effect as a cohabitation agreement where it has the aim of removing any ambiguity surrounding what happens in the eventuality of a relationship breaking down.

Can you overturn a Declaration of Trust?

As we said at the outset, the world changes, people change, and circumstances change. So, providing all parties to the agreement agree to overturning the document, then it can be amended or re-written. Here are some basic guidelines:

• For small amendments, you can draw up a Deed of Variation can be appended to the original document to add additional clauses.
• For larger changes, you should consider re-writing the agreement. A large change might include a substantial change in the value of the property due to renovations or a partner buying out another person's interest.
• A re-written agreement renders the previous agreement null and void.

What happens if we are a cohabiting couple with a declaration of trust and we get married?

• If you are a cohabiting couple with a Declaration of Trust and you get married, the Matrimonial Causes Act 1973 will supersede your deed. Essentially, this act stipulates how a court can act when settling a divorce. It also lays out the court's powers when determining how a property that is owned by the married couple is administered.
• If you're a married couple and your divorce reaches the court, it will be up to the court to take into account the declaration of trust as reflecting your intentions. But bear in mind that the court has no obligation to honour the terms that are laid out in the deed.
• If you want to remove any ambiguity and ensure greater certainty by overriding the Matrimonial Causes Act's 'default' position, you may want to consider replacing your Declaration of Trust with either a prenuptial or postnuptial agreement if you are a married couple.

‍

‍

‍

‍Note: Please note that this post is for general information only and does not consist special legal or other professional advice. Should you require specific legal advice, we recommend specific advice from a lawyer.

‍