What is a Declaration of Trust?
A Declaration of Trust, also known as a trust deed, is a legal document that is developed when individuals purchase a property together. It outlines the initial financial contributions to the transaction and further explains each member’s ongoing financial obligations and the course of action in case of a sale. This document is very flexible and can be easily tailored to any matter type in order to accurately serve the interests of all involved parties.
Importance of a Declaration of Trust
A Declaration of Trust is crucial in situations where the members of the party purchasing a property don’t have a legally recognisable relationship, such as a marriage. Unmarried couples don’t share the same rights as married ones, no matter the length of the relationship or if children are involved. Other co-ownerships such as those with a business partner or those which use funds from a family member also have different rights. In any situation in which the costs of the property won’t be split evenly, it is important to obtain a declaration of trust in order to avoid legal complications down the line.
For example, if two people are looking to purchase a property at a set price, but they are not married and in different financial positions, they could split the cost unevenly. Person 1 may put forward 60% of the necessary funds and Person 2 will pay for the remaining 40%. With this divide, a declaration of trust may be desired, especially if there is potential for a sale in the future. Depending on the terms of the document, it could be established that Person 1 will receive 60% of the proceeds from the sale, while Person 2 will only receive 40%, remaining proportionate to the amount they originally invested.
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What should be included in the Declaration of Trust?
As each situation is different, your solicitor will work to ensure that the document is suited to best fulfil the interests of all parties involved. This means that not every declaration will be the same, but as a general rule, the following information should be included:
- How much each party contributed to the deposit
- How the mortgage will be paid off, and how much each party will be contributing towards repayments
- What percentage of the property each party will own
- How the proceeds of a sale should be split
- An agreed way of valuing the property
At what stage should I obtain a Declaration of Trust?
If a Declaration of Trust is desired, it should be created upfront. This agreement can only be backdated in very certain circumstances and can be challenging to deal with.
Once you are certain about purchasing a property with another person, a discussion regarding this document should take place and be acted upon as soon as possible if deemed necessary.
Transfer of equity on Declaration of Trust
“Equity” refers to the portion of a property that each owner holds- therefore, when you perform a transfer of equity, an owner either obtains some equity if they are being added to the title deeds or loses their equity if they are being removed. Essentially, a transfer of equity just means a change in the legal ownership of a property.
With the changes in legal ownership, it comes to no surprise that many want to protect their beneficial interest in a property. By using a Declaration of Trust, you can record the change in legal ownership, which can act as evidence of any transfer of equity agreement. In this way, you are protecting your investment in a property if things do not go as planned.
For more about transfer of equity, read some of our blogs here:
Our transfer of equity solicitors are experienced in all aspects of transfer of equity conveyancing in England and Wales. We handle property transactions nationwide, specialising in transfer of equity whether this relates to your home or a buy to let property.
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Are these declarations legally binding?
Yes, Declarations of Trust are legally binding documents for the owners. This protects all assets discussed in the agreement if something were to occur in the lives of the owners during the period of property ownership, such as a sever in the relationship.
Do Declarations of Trust affect a mortgage?
No, the Declaration of Trust generally shouldn’t have an impact on a mortgage. Many lenders require that this agreement be reported to them, but they don’t tend to have an issue with it.
What happens if parties get married?
If the parties to the declaration get married or divorced, the document isn’t void. All the conditions remain in place and legally enforceable in court. However, if the individuals should marry and then divorce, a court may disregard the terms of the declaration as part of the financial divorce proceedings.
Does a Declaration of Trust sever a joint tenancy?
Yes, the document will discontinue a joint tenancy, instead establishing a tenants in common ownership structure.
Owning a property as tenants in common means each owner has a specific share of the property with separately transferable interest, compared to a joint tenancy in which the parties share equal rights to the property.
As the declaration establishes what financial obligations each owner has contributed, their share of the property is clarified, thus overriding any prior joint tenancy agreement.
If you are severing a joint tenancy when you co-own a property in England or Wales, it important to serve a notice known as a Notice to Sever Joint Tenancy.
But you should also be aware that you would need to also sever a joint tenancy at the land registry.
Is it advisable to sever a joint tenancy at the land registry?
Yes, it is. After a notice to sever a joint tenancy has been issued, you must notify the land registry of anything changes to the ownership of a property.
If the property is registered at the Land Registry, you must register the charge with them. This can be done by applying for a ‘Form A restriction’.
If the other owner agrees to the notice to sever joint tenancy, then you can apply using a ‘Form SEV’. If the other owner does not agree, then you can apply using ‘Form SEV’ or ‘Form RX1’ to register a restriction without the other owner’s agreement.
How long does a Declaration of Trust last?
The Declaration of Trust will remain valid for the length of time the property is owned by the involved properties.
Do trust deeds need to be registered at the land registry?
No, the land registry doesn’t require the deed to be registered.
Can these declarations be changed?
As with many other legal documents, the declaration is in place to ensure that there are predetermined rules established for the time the property is owned. We acknowledge that life is always changing, and therefore, circumstances may change significantly after the original Declaration of Trust was signed. This being said, parties are able to legally modify the document, only following the consent of both parties.
If you want to make substantial alterations to the document, it may be best to develop a new one entirely. Once written and agreed upon, the latter declaration takes precedence over the former, thus rendering any conflicting agreements void.
If you want to make minor changes, you can enter a deed of variation. This new document refers to the original and adds the new information and requirements. It should clarify what details in the initial declaration are being replaced.
Can a Declaration of Trust be challenged?
In the majority of cases, challenging a Declaration of Trust in court is difficult. These agreements form when there are clear intentions on behalf of both parties, thus minimising room for individuals to go back on it. The only cases which tend to make it to court are those with deeds based on fraud or misrepresentation.
The three types of misrepresentation are:
- Fraudulent misrepresentation– occurring when someone has intentionally misled you regarding the declaration of trust.
- Negligent misrepresentation– resulting when information in the trust deed is incorrect, but was caused by carelessness by the offending party, rather than by intent.
- Innocent misrepresentation– occurring when the representation of fact is false, but not due to fraud or negligence.
In a case of fraudulent or negligent misrepresentation, you may claim rescission (voiding the contract) and damages (monetary compensation). If innocent misrepresentation is present, it is the court’s discretion whether to award rescission or damages, but not both.
For more about whether you can challenge a Declaration of Trust, read our blog here:
Is it advisable to instruct a solicitor for a trust deed matter?
Although it is possible for one to write their own deed, these documents must be developed carefully and accurately in order to avoid future legal disputes. Instructing a solicitor ensures that the declaration accurately reflects all parties’ interests, considers future sales, and upholds the necessary legal requirements.
Why choose Starck Uberoi?
At our firm, we are able to assist in drafting and finalising Declarations of Trust as well as defending you if necessary. In a recent case, we represented a client fighting misrepresentation. A claim was brought against them saying that they used undue influence and/or misrepresentation on the defendant in order to procure her signature. She argued it was unethical for our client to seek out the signature in this manner, thus believing she had the right to set aside the Declaration of Trust.
Our client claimed that the other party had voluntarily entered into the declaration. We identified that the claimant, having passed financial examinations to become an accountant, wasn’t inexperienced in business matters. The claimant also hadn’t made financial contributions to the property purchase other than taking out the mortgage, not seeking any further clarification despite having multiple opportunities. The argument being made was also restricted by laches and acquiescence, which are legal doctrines preventing unfair assertions of claims focusing on unreasonable delays between the signing of the document and the assertion of the claim. As a result, we were able to help our client receive justice and fairness.
How can Starck Uberoi help?
A Declaration of Trust is one of the most essential ways to legally note an individual’s interest in a property. This being said, these documents are often the source of disagreements, thus making it important to instruct a solicitor with experience to avoid future litigation.
Our London-based team of litigation solicitors understand when a Declaration of Trust can be challenged. They will be able to help in drafting a deed should you need it and will be able to advise you in a legal argument claiming misrepresentation and/or undue influence, regardless of whether the claim is brought about by you or against you. All of our solicitors are regulated by the Solicitor Regulation Authority (SRA), so you can be rest assured that by instructing us, you will receive personalised legal advice from our expert team.
To book an appointment with one of our property lawyers, please call 020 8840 6640 or email solicitor@starckuberoi.co.uk. Our offices are located in Brentford, Richmond, Ealing, London Belgravia, and Canterbury, all within easy reach by public transport. Our partner, Raminder Uberoi, can also provide a Notary Public service at any of our offices.
