John and Sarah are purchasing a property jointly, however, as Sarah is still a student she does not have a sufficiently adequate credit rating to be able to be party to the mortgage and thus the title, she has however saved enough for her share of the deposit.

In this situation a Deed of Trust can be used to good effect. The deed would show that the legal title of the property is held in John’s sole name in trust for the benefit of both John and Sarah, this is how a trust instrument is typically used. John and Sarah can also specify the proportions in which each of them will hold the property (as Sarah will be contributing more) and in what proportions each of them will be liable to contribute towards the running costs of the property.

Sarah was also worried about her ability to recover her contribution in the event that her and John ever split up. The deed can specify under what circumstances the property is to be sold. For example if John and Sarah decide to end their relationship and one party moves out, either party can serve a sale notice on the other informing them of their wish to buy the other party out. If this cannot be decided then the deed has provision for the property to be placed on the open market and the proceeds then dispersed according to the provisions of the deed. This is a general overview of the way in which the deed works, each deed and each situation is of course different and our deeds are drafted accordingly to cater for each client’s specific needs.

In this situation as John would be the sole legal owner of the property a Form A Restriction would need to be placed on the title to the property in order to ensure that one party (namely John) could not sell the property on his own even though he was the sole legal owner without appointing a second trustee to accept any sale monies. See our FAQ Section for further information regarding Form A Restrictions.

In recent years it has been very common for the parents of first time buyers to help contribute towards the deposit when their offspring decide to take their first steps onto the property ladder. The following example explains a situation where a deed was created some time after the property was purchased, of course it is always better advised to have a Deed in place when the purchase is made to fully protect all parties and ensure that the arrangement between all parties is regulated from the offset. However this does not prevent parties from entering into a deed at a much later date. The important factor is that there is agreement between all concerned parties.

Bradley and Angela jointly own a property. When they purchased the property they did so with the aid of a mortgage that they took out jointly, and they contributed unequal shares towards the remainder of the purchase price. Angela’s mother, Mary, also provided a sum of £50,000 towards the deposit.

Mary wants to ensure that her interest is protected and Bradley and Angela have both agreed that if and when the property is sold they want Mary’s contribution returned to her first.

In this situation a deed of trust can be drawn up to reflect Bradley, Angela and Mary’s specific circumstances:

• In this example, Bradley and Angela Purchased the property for £500,000, they took out a mortgage for £400,000 and Mary provided £50,000. Bradley provided £30,000 and Angela £20,000 towards the remainder of the purchase price.
• A deed can be drawn up to state that when the property is sold the first £50,000 of the proceeds of sale AFTER the redemption of the mortgage and associated sale costs (Estate Agents etc…) will be due to Mary solely. Any proceeds remaining up the value of £500,000 will be split in the ratio of 60% to Bradley and 40% to Angela. And anything remaining thereafter will be split 50/50 between Bradley and Angela.

To continue the example if we assume that the property is sold some time in the future for £600,000, with the following costs:

• Sale Price: £600,000
• Mortgage Redemption: £340,000
• Estate Agents Fees: £10,000

Then the proceeds would be split as follows:

• Amount left after redeeming mortgage and paying costs: £250,000
• The first £50,000 of which would be due to Mary solely.

The following £100,000 (because that takes the price up to £500,000) of which would be split according to the agreed ratio (60/40)
And the remaining £100,000 to be split equally as this is the remainder after the application of the above clause, meaning the split would be:

• Amount due to Mary: £50,000
• Amount due to Bradley: £110,000 (60% of the first £100,000 and 50% of the remainder)
• Amount due to Angela: £90,000 (40% of the first £100,000 and 50% of the remainder)

Please note that in the above scenario Mary could also have instructed her own Solicitor to enter a registered charge on Bradley and Angela’s property in order to fully protect herself, however this process can be expensive and the consent of Bradley and Angela’s mortgage company would also be needed in order to enter a legal charge rather than equitable one.

George and Jennifer are purchasing a property jointly, however Jennifer is contributing £10,000 more to the purchase price than George. Jennifer is happy to receive her £10,000 first in the event of any sale.

A deed would be drawn up to state that the property is held in equal shares subject to the first £10,000 of any sale proceeds, after the deduction of the mortgage redemption and associated sale costs, being owed solely to Jennifer.

In the above scenario Jennifer could have apportioned her contribution to rise with the value of the property, that way her investment would grow as the market value of the property increased. We can draw up a Deed to reflect either of these situations, the decision ultimately lies with you and whether you would like your portion to grow or whether you are happy to be guaranteed a set amount upon any sale of the property. This consideration is much more prominent when the disparity between the amounts contributed by each party is large.

Jo already owned a property that had a small mortgage secured on it with approximately 70% spare equity. Jo’s partner is moving in with her and will contribute to the remaining monthly mortgage and outgoings as well as paying for improvements to the property.

The following is one way to deal with the situation albeit fairly complex:

• Jo’s particular circumstances can indeed be incorporated into a deed of trust. The key factor is in what proportions Jo would like to hold the property with her partner. They have a couple of options, firstly a deed can be prepared so that a set amount is paid to Jo upon sale of the property at some point in the future and of anything else remaining thereafter (after paying off the mortgage and other costs) Jo and her partner can decide on how to split it, for example 50/50.

The other option is to declare, in terms of percentages, what each parties respective shares in the property are. These particular circumstances would involve a more complex agreement like the one exampled below.

By way of an example:

• Current Property Value = £100,000
• Current Mortgage = £30,0000
• New Party contribution
• (eg for improvements) = £20,000
• Mortgage Payments to be shared equally

For arguments sake we will say that in 5 years time Jo and her partner decide to sell the property and it is sold for £200,000 with £20,000 left on the mortgage.

In this case we could create a deed that would state that there is an element of “mortgage share” and “equity share” being 30% mortgage and 70% equity. Each of these would be divided into Jo and her partners specific proportions, ie both parties having equal amounts of the “mortgage share” and Jo having 80% (for example) of the “equity share” as opposed to Jo’s partners 20%.

In the example above Jo’s returns from selling the property would be as follows:

• Sale of Property: £200,000
• Mortgage Share: £60,000 (30% of £200,000)
• Equity Share: £140,000 (70% of £200,000)

You will notice how each share has grown in proportion to the original shares according to the rise in property value (this applies equally if the price drops and there are special provisions with regard to negative equity within the deed, however in light of the amount of equity currently in Jo’s property this is unlikely.

From the mortgage share element you would obviously have to redeem the existing mortgage:

Less mortgage

• • Redemption: £60,000 – £20,000 = £40,000 to be split according to your shares of the mortgage share which in this case/example would be 50/50, so £20,000 each.

This leaves the equity share which has now grown to £140,000, and this was agreed to be split 80/20 in Jo’s favour, so

• Total to be split: £140,000 @ 80% = £112,000 to Jo
• £140,000 @20% = £28,000 to Jo’s partner

Now the 2 shares would be added to come up with the total split of profits:

• • Jo: £112,000 + £20,000 = £132,000
  • Jo’s Partner: £28,000 + £20,000 = £48,000

This may seem like a very complicated method and formula but we have found that in cases like the above example this type of arrangement appears to work best, of course the specific “shares” in mortgage and equity would need to be decided between the parties but of course the above example serves to provide a rough indication of what sort of return each party would expect.

Please also note that agents costs etc haven’t been included in the example for the sake of clarity, but would be provisioned for of course in the deed.

This type of deed is suitable when there is a difference in the amount each party is responsible for in relation to the mortgage element of the property and also to the equity in the property.

If either party did not have their respective shares linked to a mortgage or equity portion then on one hand one party could borrow more to diminish the other’s share and conversely if that party paid off a large part of the mortgage the other party’s share would greatly increase.

This is a complex deed to understand but the important thing to remember is that the mortgage and equity shares remain fixed meaning all of the above pitfalls are avoided. When calculating the mortgage/equity split when selling the property the deed is not looking at the actual amount of mortgage outstanding or the amount of equity, it is merely applying the percentage split, the example below illustrates this:

Abdul and Sara purchased a property together with the aid of a mortgage. It was agreed between them that as Abdul would be residing at the property and Sara would not, Abdul would be responsible for the payment of the entire mortgage amount and other outgoings and any monetary split upon sale of the property in the event that the property price rises should reflect the additional contributions Abdul would have made towards to the payment of the mortgage.

It was therefore agreed that Abdul would have 100% of the mortgage share and 50% of the equity share whereas Sarah would have 0% of the mortgage share and 50% of the equity share.

• Purchase Price: £200,000
• Mortgage: £150,000

The mortgage/equity split would be:

• Mortgage Share: 75%
• Equity Share: 25%

Abdul and Sara each contributed £25,000 towards the deposit on the property and paid for all associated costs including stamp duty and land registry fees equally meaning they have 50% each of the equity share.

If the property was sold in the future for £300,000 the same shares would be applied to the new sale figure:

• Property Sale Price: £300,000
• Outstanding mortgage at the time of sale: £100,000
• Mortgage Share (75%): £225,000
• Equity Share (25%): £75,000

As Abdul would be the only person entitled to the mortgage share and 50% of the equity share the split of sale proceeds would be decided in the following amounts:

Abdul’s entitlement:

• Mortgage Share: £225,000 (Less the amount of outstanding mortgage of £100,000) meaning Abdul would get £125,000 for his mortgage share
• Equity Share: 50% of the equity share of £75,000 equalling £37,500
• Abduls Total Share: The total amount Abdul would receive is his mortgage share combined with his equity share = £225,000 (mortgage share) PLUS £37,500 (equity share) Totalling: £262,500

Sara’s entitlement:

• Mortgage Share: Nil
• Equity Share: 50% of the equity share of £75,000 equalling £37,500
• Sara’s Total Share: The total amount Sara would receive is her mortgage share combined with her equity share = £0 (mortgage share) PLUS £37,500 (equity share) Totalling: £37,500

You can see that the above structure works regardless of the sale price. The key thing to remember is that the mortgage/equity ratio is just used to determine the split between mortgage and equity and the resultant ratio is then applied to any sale price regardless of the actual mortgage/equity split at the time, as you can see in the example above even if Abdul reduced his mortgage down to £50,000 from £150,000 Sara would only receive her element of the equity share and would not be able to touch the mortgage share which would be due to Abdul in its entirety.

A deed of trust can also be used to provide some protection when investing in property and indeed we do offer an investment class deed for this very purpose.

The suitability of this type of deed is very much dependent on your particular circumstances so we would always advise that you contact us prior to placing an order for such a deed.

There is a requirement that the owner of the property fully understands that once the deed is executed the property will be held on trust for the executing parties. A deed may not always be the best solution and we will of course advise you if we feel this is the case. If so it may be necessary for you to seek a more commercial agreement and we can direct you towards firms who specialise in such legal instruments.

By way of an example we can look at the case of James and Paul.

Paul decided to lend some money to his friend James and wanted some way to ensure his loan was protected (you should always arrange a formal loan agreement to regulate the way in which the loan is repaid and the rate of interest etc).

We drew up a deed to state that James would hold the legal title of the subject property on trust for himself and Paul. We also drafted specific clauses to manage the monetary amount due to Paul in the event that the property was sold. The amount he would be entitled to was linked directly to contributions James had made to repaying the loan meaning the amount was flexible and this suited both James and Paul as they understood that once the loan was repaid and evidenced by way of a receipt Paul’s entitlement under the terms of the deed would be extinguished.

We can of course offer more complex variations of this type of deed but as mentioned we always consider the individual circumstances of the case before advising you whether a deed of trust would be appropriate.

William and Kate have recently decided to end their relationship. Whilst together they purchased and lived in their property together. William agreed to vacate the property and sell his share to Kate for the sum of £10,000.

Kate approached her bank to request that the mortgage (and title to the property) be transferred into her sole name. Unfortunately her bank refused to allow the removal of William’s name from the mortgage because Kate’s sole income was insufficient to lend her the amount required to refinance the property.

Because Kate was unable to re-mortgage in her own name and to regulate the arrangement between them William and Kate agreed to enter into a deed of trust.

The deed of trust was drawn up to state that the legal title of the property would be held in both William and Kate’s joint names as Tenants in Common on trust for Kate as the sole beneficiary.

The deed also provided several indemnities for the benefit of William. In practical terms this meant that Kate agreed to be responsible for all mortgage repayments and outgoings associated with the property and she would indemnify William against any action taken against him as a result of any non payment of mortgage repayments or other amounts that may be due from them both. Other indemnities provided comfort for William that he had recourse to legal proceedings by virtue of the deed if Kate failed in her obligations under the terms of the deed.

In deeds of trust of this type it is good practice to include a time frame within which Kate would endeavour to re-mortgage the property and remove William’s name from the mortgage and at the Land Registry. The deed provided for a term of 3 years within which this should happen, failing which William would have the ability to request that the property be sold on the open market and Kate would be obliged to co-operate.

The deed also contained a receipt clause that made it very transparent that William was surrendering any beneficial interest he had in the property or any proceeds of sale in return for the sum of £10,000.

2 years after the making of the deed Kate was able to obtain a mortgage with a new lender and this enabled William’s name to be taken off the mortgage and the title deeds.

The above situation provided comfort for both parties in that Kate knew she was responsible for all payments and that she had a period of time within which to re-mortgage the property. For William he had comfort knowing that he would not be bound to continue making mortgage payments and he had a legal avenue to protect him in the event that Kate defaulted. They both had comfort that the deed acted as a receipt for the money paid by Kate to William.

Claire purchased her house several years ago in her sole name with the aid of a mortgage. She has been repaying the mortgage and paying for outgoings related to the property ever since.

Claire recently began a relationship with David and they have decided that they will live together in Claire’s house. They have agreed that David will contribute an equal amount to Claire’s mortgage as well as towards the outgoings related to the property.

Claire is worried that she may be relinquishing a share of the property to David because of his contributions. David has stated that he has no desire to own a beneficial share of Claire’s property and that he only wishes to pay for his fair share whilst they reside together in Claire’s house.

In order to provide comfort to Claire they enter into a deed of surrender. This deed expressly states that there is no intention for David to acquire any share in the property EVEN though he will be contributing towards the mortgage and outgoings. Claire can now rest assured that David cannot validly claim any interest in her property.

The couple have also agreed that there is nothing to stop them changing their outlook in the future and they may in fact enter into a deed of trust at some point which actually provides David with a beneficial share of the property.

A deed of surrender is used in this scenario to provide reassurance to Claire and also to document the understanding between Claire and David. This clearly provides peace of mind to both parties and helps Claire to know that her property is still very much in her control until she decides otherwise.

You can complete an application form for a deed of surrender here.

We offer a fixed fee service for our deed of surrender which is £150 plus Disbs meaning the total you pay is £180 inclusive of all taxes with no nasty surprises later on!

Sophie and Tom are purchasing their first property together and will be contributing unequal amounts towards the property purchase price, with Sophie contributing £90,000 and Tom £10,000. They will be paying for all of the associated costs of purchase, including Stamp Duty Land Tax, in equal shares of £5,000 each.

As Sophie is not working (and Tom has a well paying job) she will not be contributing as much to the mortgage as Tom going forwards.

Sophie would like the fact that she is contributing more towards the purchase price recorded in the deed and reflect any return she makes when the property is sold. Likewise, Tom would like the fact that he will be contributing more towards the mortgage to be reflected in the deed ensuring that his return is appropriately increased.

This kind of situation is becoming more and more common and a standard deed will not usually be able to do justice to Sophie and Tom’s requirements. The issue is that there is no fixed percentage which is going to be declared in the deed to reflect each party’s share. Rather, the deed will contain a formula to use when calculating each party’s share.

This formula will take into consideration the contributions made by both Sophie and Tom to not only the initial purchase price and costs, but also contributions towards reducing the capital mortgage debt (be this through normal monthly mortgage repayments or lump sum capital payments) and also any agreed improvements or renovations to the property.

This method allows the share of each party to be dynamic and at any given point in time it will reflect the total contributions made by each party to the property, and therefore will accurately reflect their respective shares.

The example below shows the practical effect of Sophie and Tom’s situation:

Example:

• Property purchased in 2014 for: £310,000
• Mortgage of: £210,000
• Property sold in 2018 for: £440,000
• Remaining Mortgage: £110,000
• Estate Agent Fees: £10,000
• Balance to be split: £320,000

Over the course of ownership of the property, it was established that Tom redeemed £75,000 of the capital mortgage debt and Sophie £25,000. They also improved the property and contributed to the improvements in unequal shares: Sophie contributed £5,000 and Tom £25,000.

Using the figures and timings above Sophie and Tom’s respective shares of the balance of £320,000 would be calculated in the following way:

• Contribution towards purchase Price: Sophie: £90,000 | Tom: £10,000
• Contribution towards purchase costs: Sophie: £5,000 | Tom: £5,000
• Contribution towards mortgage debt: Sophie: £25,000 | Tom: £75,000
• Contribution to improvements: Sophie: £5,000 | Tom: £25,000
• Total Contributions: Sophie: £125,000 | Tom: £115,000

(£240,000 contributed in total by both)

• Expressed as percentages: Sophie: £125,000/£240,000 = 52.08%
  Tom: £115,000/£240,000 = 47.92%

Therefore the balance would be split thus:

• Sophie (52.08% of £320.000) = £166,656
• Tom (47.92% of £320.000) = £153,344

As you can see from the above illustration, Tom has managed to increase his share through the larger contributions he made to repayment of the mortgage debt and also to improvements to the property.

This type of deed is called a Commensurate Share type deed. It should now be available to select as an option on the application form.