Buying a new house together, whether as a couple, or as friends getting onto the property ladder or as part of a family arrangement, is an exciting (and often stressful) time. There are lots of decisions to be made about location/price/property type and size and it’s easy to get swept along without making sure that everyone buying in to the property understands and agrees what should happen when the time comes to sell or move on. Is it possible to put steps in place protecting your house deposit?
It is not at all uncommon for those purchasing a house together to make uneven contributions to a deposit, with one person contributing more financially than the other.
In the absence of a properly documented agreement about how a greater contribution to a deposit will affect the co-owners’ entitlement to the sale proceeds, disagreements can arise when a property is to be sold.
Different Deposits: Case Study
Sam and Alex are an unmarried couple and have been together for four years and decide to buy a property together which is worth £300,000. Sam contributes with a deposit of £100,000, and Alex contributes with a deposit of £20,000. Sam and Alex pay for the mortgage equally.
Despite their differing contributions to the purchase of the Property Sam and Alex confirmed in the form they completed to buy the property (known as a TR1) that it would be owned in their joint names as joint tenants.
Sam and Alex split up after five years of living together in the Property, and Sam moves out of their home. Alex can no longer afford the mortgage on their own and puts the property on the market for sale.
Because the property is owned as joint tenants, the legal position is that the sale proceeds will go 50% to Sam and 50% to Alex, despite their different contributions to the deposit.
Alex will not agree to paying Sam more than 50% of the sale proceeds, despite Sam paying a lot more into the property than Alex.
What can Sam do?
Sam could apply to the Court for an Order stating that the property is owned in shares other than 50/50. However, as Sam and Alex completed the TR1 form stating that they owned the Property as joint tenants, and signed this form as a Deed, they created what is known as a Declaration of Trust. Therefore, it would be very difficult for Sam to bring any claim that the property sale proceeds should be distributed anything other than 50/50 successfully, and there are very limited circumstances in which a Declaration of Trust can be challenged.
It may be that Sam was not properly advised regarding the implications of completing the TR1 stating that Sam and Alex would own the property as joint tenants by the solicitor who acted in the purchase. If so, Sam could bring a negligence claim against the solicitor.
What could Sam and Alex have done differently?
Sam and Alex could have created a Declaration of Trust, either at the time of their purchase or at any point in their cohabitation that confirmed that they did not own the property as joint tenants and owned the beneficial interest in unequal shares.
By way of example, such a Declaration of Trust could have recorded Sam’s larger contribution to the deposit and stated that Sam was to be paid the first £100,000 from any sale proceeds, thereby ‘ringfencing’ and protecting Sam’s larger investment.
Protecting your money
It is extremely important as a co-owner, that if you want to protect a larger monetary contribution to a property, that your mutual intentions are recorded at the outset, in a way which is legally binding, to help prevent potential disputes later down the line.
That’s where a cohabitation agreement and/or a declaration of trust can help as practical steps to protect all co-owners and prevent potential future costly litigation. Our specialist lawyers in the Inheritance and Trust Disputes team can advise you on how to protect your assets and investments, and what to do if you are now in a situation where you face a dispute about property ownership.