Property Buying Guide
Trust Deed, Declaration of Trust and Co-habitation or Co-ownership Agreement
It's important that you draw up an agreement between the joint owners that will include information such as who has put what into the property, who owns what and what happens in the event of someone wishing to move on. This is to reduce the risk of buying with someone else and is a way of putting measures in place to protect you.
A trust deed, or declaration of trust, sets out the share of equity to which each owner is entitled on sale. The owners can come up with whatever formula they wish for working this out and the formula might include reference to differing contributions to mortgage payments, household bills or maintenance costs, as well as initial contributions to the purchase price. However, it is entirely up to the owners how they want to work their final shares out when they come to sell, or terminate the arrangement. What is set out in the trust deed, or declaration of trust, will be definitive. Your conveyancing solicitor can help you with a quote for drawing up agreements or the trust deed. Get a quote for the conveyancing now then ask about the agreements aspect.
A cohabitation agreement regulates the day-to-day use, occupation and running of the property and can therefore cover a whole range of issues, which will vary according to the particular circumstances and what the individuals concerned consider to be their priorities. This might well include the proportion of the mortgage repayments to be paid by each party, but the fact that this is set out in the cohabitation agreement does not mean that it affects the split of equity on sale. This is governed by the trust deed, or declaration of trust, and it is in this document that the owners may include the proportions in which the mortgage payments are made in their formula for calculating their respective shares.
To make this joint property investment work you need to:
- Feel that the person you have chosen to invest and live with is trustworthy and is someone you could get on with.
- Draw up both a trust deed, or declaration of trust, and cohabitation agreement that you are both/all happy with.
- Be reasonable with each other, discussing and settling any possible areas of dispute.
You will each be putting down separate deposits on the property. You will probably want to set up a joint bank account from which the mortgage payments and perhaps other household expenses are paid. You may agree to make different payments into that joint bank account. These factors mean that accurate and open records must be kept so that when you come to terminate the mortgage, you will be able to see exactly what your shares should be.
How the profits from the house could be split when you come to sell, will be covered in your trust deed, declaration of trust or co-habitation agreement.
You have to decide what suits you and how much flexibility you need. Work with your solicitor on this area.
You will need to discuss with your partner or partners how you intend to share out all sorts of costs, including how you split the costs of purchasing the property. It's up to you in your unique situation to draw up the right documents to your satisfaction.
You will need to discuss at least the following and know what you agreed between you. What you both or all decide about these issues will be covered in either the trust deed, declaration of trust, or co-habitation agreement:
- Amounts of deposits paid (the lump sum you have to pay at the beginning).
- How the equity is split based on payments into the mortgage when you come to terminate the mortgage or sell the property.
- What ‘share' of the mortgage is each party going to pay?
- Home insurance: this will include insurance for the actual building, the bricks and mortar, and separate insurance for your furniture and possessions (contents insurance).
- Stamp Duty .
- Solicitors' fees, searches, etc.
- Records of expenses on the house.
- House maintenance (decorating costs, roof repairs, etc).
- Improvements (such as a home extension, new window frames, etc).
- Cost of a surveyor.
- Mortgage payment protection.
- Critical illness /payment protection.
- How to value the house if one of you wants to sell.
- What happens if one of you dies.
- Make an inventory of key possessions.
- Make an inventory of any new shared items of furniture and furnishings.
- House rules – a partner moving in, etc.
- Use of common areas.
- Undesirable behaviour/unacceptable behaviour.
- Use of shared or sole-use equipment/furniture.
- Alterations and improvements.
- Falling out.
- Lodgers/renters/how rental income is split.
- Another mortgage payer joining the arrangement.
- What happens if one party ceases to make life insurance premium payments or the mortgage payments - where the money will come from and how will it affect each other's contributions towards the property. (You can agree that the premiums are compulsory).
- Keeping up payments.
- Moving out if payments are stopped and not covered by insurance.
- Finding a tenant and tenant selection.
- What period of notice should be given and after how long.
- Remortgaging, selling or finding a tenant
- Cost of sale or remortgaging and finding a new property partner and who should pay or how it should be split.
- What you do if an owner wants to move out and not sell.
- What you might do if someone wants to sell up and the other doesn't want to.
- Splitting the goods and chattels.
- Agency fees if necessary, if you sell the property.
- Assessing relative equity, or negative equity, if you want to sell and the house has reduced in value.
- Insurance policies you decide to take out.
- National Insurance numbers could also be included to give extra security and peace of mind.
- How much rent you pay to a non-resident co-owner
Remember, as time goes on, and any dispute or difference arises, it will benefit both sides to come to an agreeable compromise, even if that means someone moving out but retaining their stake and renting their room out. You both want the same thing - to get onto the property ladder in your own right, so work together, perhaps like colleagues on a project to help your own company.
If you are interested in starting a dialogue with other like-minded individuals with a view to co-buying to buy a first home, register at one of the many agencies that have set up to help you find a co-buyer or co-investor:
Such as, sharedspaces.co.uk, jointequity.co.uk, propertyfriends.co.uk
At these agencies you can find an extra person to add to your buying group.
Find out more about Joint Ownership, Joint Equity and Co-Buying a property in our guide:
What's good about joint ownership? What are the downsides of joint ownership? l How much can we borrow for a joint ownership mortgage? l The two types of joint ownership, joint tenancy and tenants in common l Example of a declaration of trust l Example of a joint ownership agreement l Joint mortgages and how the finances could work when you buy with others l Finding someone to invest with and tips for those using joint ownership schemes where you can meet other prospective joint owners. l Frequently asked questions about joint ownership
Most useful and most popular pages on this site:
Look for your First Property l Seek First Time Buyer Mortgage Advice l See our Best First Mortgages Comparison Table l Find out about First Time Buyer Mortgages l Find out How to Buy a House l Learn all about The First Time Buyer Mortgage l Shared Ownership