The Importance of Trust Deeds when Purchasing a Property

Many people purchase property jointly with another person.  Sometimes couples set up home together.  Sometimes friends or siblings purchase together to enable them to get on the housing ladder.  If you are married all property that you and your spouse own, whether in sole or joint names, will be considered as assets in the matrimonial pot and available for division depending on the circumstances.  However, if you own or intend to purchase property with any person other than your spouse, different rules apply.

Legal ownership and beneficial ownership are two very different things.  Two people may legally own a property but only one of them may hold the beneficial interest ie they would be entitled to 100% of the value of the property with the other entitled to nothing. 

You can decide how you want to hold the beneficial interest in a property at the time of purchase or at a later stage.  If you are purchasing a property with another person, our conveyancing department will ask you how you wish to hold the beneficial interest and will explain the consequences to you.  An example may be when two people are purchasing together with a joint mortgage but one party, or indeed a third party,  is providing a substantial deposit.  Would it still be the intention of the parties to be entitled to the value of the property in equal shares?  Where the beneficial interest is not intended to be held equally, it is important that your intentions are recorded in a Trust Deed.  Reference to the Trust Deed will be made on the Transfer document when the property is conveyed into your names.  There will also be a record made on the Land Register.

If a dispute arises at a later stage as to how the beneficial interest in a property is held, the first place the Court will look will be to the Land Register.  Regardless of what may have happened between the purchase of the property and the dispute, the Court has no discretion to adjust the recorded interests to achieve a fair outcome unless there is evidence that the parties themselves both intended to do so.  This can sometimes produce what might appear to be a very unfair result. 

In the recent case of Kernott v Jones this is exactly what happened.  Mr Kernott and Ms Jones purchased a property jointly in 1985 for £30,000.  Ms Jones paid the deposit of £6,000.  The balance of the purchase monies came from a mortgage in the parties’ joint names.  The couple had two children but separated in 1993.  Mr Kernott moved out and purchased another property using his share of the proceeds of a joint endowment policy.  Mr Kernott did not contribute to the mortgage, or financially maintain Ms Jones or the children from the date he left in 1993 to 2006 when he claimed his half of the property.  It was Ms Jones’ case that although the Land Register referred to her and Mr Kernott owning the property jointly (there had been no Trust Deed to say otherwise) she had paid the purchase deposit, the mortgage and the outgoings for the past 13 years without Mr Kernott’s assistance and she should therefore be entitled to 100% of the beneficial interest.  The matter was appealed twice but the final judgment supported Mr Kernott’s claim.  He was entitled to 50% of the proceeds of sale of the property.  This was what had been recorded at the Land Register and nothing had been said or done by the parties to indicate that they held the property other than equally.

Cohabitation is not a defined legal status.  Cohabitants can only rely on property rights which are usually determined at the date of purchase of a property and do not take into account the family nature of the relationship.  The Court will not consider the “fairness” of the circumstances at the end of the relationship. 

If you would like further advice on the drawing up of a Trust Deed, please contact Elizabeth Bettes of this office.

Elizabeth Bettes

Published on 30/09/2010