A deed of trust is a legal document used to outline how property is owned and managed by two or more parties. Deeds of trust are often used in property transactions, like when owners contribute different amounts towards a purchase. In this guide, we'll explain what a deed of trust is in the UK, how it works, and the benefits it can offer.
Deed of trust meaning
In UK law, a deed of trust is a legal agreement between two or more parties during a property transfer. It shows how the property is divided and exactly what percentage of the property each party owns. It will also specify what will happen if the property is sold or if one of the owners wants to be bought out. In a nutshell, it provides the legal structure of ownership. The document is typically drawn up by a solicitor and signed by all parties to confirm their agreement.
What is a deed of trust in real estate?
When you purchase a property, you'll either be joint tenants or tenants in common. Joint tenants split things 50/50, while tenants in common might have different circumstances and financial splits. For that reason, tenants in common tend to invest in a deed of trust. Some people think of it as a type of prenuptial agreement. It sets out how a property will be managed and protects the financial interests of each part.
💡Editor's insight
"In my experience, most people make a deed of trust when purchasing a property. It's generally best to draft the document as soon as possible. However, you can really make a deed of trust at any time. It's recommended that you work with a solicitor to edit and revisit a deed of trust if your circumstances change significantly."
What does a deed of trust include?
A deed of trust can be quite flexible. An experienced transfer of equity solicitor will be able to help tailor the document to your specific deeds. The key details that must be included usually cover:
The names of all parties involved
Land registry
Loan amounts
Purchase price
Mortgage repayments
Share of equity in the property
You can add almost anything to a deed of trust. Other key details that you might discuss with a solicitor could include things like:
The amount each party has contributed to the deposit
The amount each party will contribute to the mortgage (and any other outgoings like bills)
What happens if one joint owner can't pay the mortgage
How much each party might get from a sale
How a property will be valued pre-sale
Times when you might need a deed of trust
There are several scenarios where a deed of trust may be necessary or a huge benefit:
If there are unequal contributions: It's common for buyers to contribute different amounts towards the property purchase. A deed ensures each party's stake and ownership is clearly outlined.
If there are two or more buyers: When it comes to securing a mortgage, you might need a deed of trust. Typically, most lenders will ask for one if there are two or more people jointly looking to purchase a property.
If you're an unmarried couple: Unmarried couples often use deeds of trust to define ownership rights and responsibilities in case of a breakup. It can offer a legally binding framework that prevents disputes.
Deed of trust vs Mortgages: What's the difference?
You might be wondering how a deed of trust is unique from a mortgage document. There are a few key differences. Mainly, a deed of trust looks at ownership interests while a mortgage acts as a loan agreement. Here's a breakdown of how these documents differ:
What they focus on
A deed of trust specifies who owns what share of the property and any conditions attached to the sale. A mortgage focuses on the financing arrangement, like repayment terms and interest rates.
When they're used
A deed of trust is more often used by unmarried couples, business partners, or family members purchasing property together. A mortgage is used by anyone to borrow money for the purchase of a property or land.
When they're required
A deed of trust is not required for all property purchases but is highly recommended in joint ownership scenarios. Whereas a mortgage is a legal requirement for financed property purchases and is regulated under strict lending laws.
Advantages of a deed of trust in the UK
A deed of trust can have plenty of benefits, particularly in protecting financial interests and reducing any conflicts. Some of the most common benefits include:
Ownership clarity: It can help eliminate confusion by specifying each party’s stake in a property.
Conflict reduction: By formalising agreements, a deed can reduce the risk of disputes over ownership or finances.
Sale flexibility: The deed ensures a fair split of proceeds if the property is sold.
Customisation: The terms of a deed of trust can be tailored to suit the specific needs of the parties involved.
Financial protection: Non-owning contributors, like family members, are safeguarded against losing their investment.
Disadvantages of a deed of trust in the UK
It's always best to weigh up the pros and cons. Though a deed of trust can be beneficial for some, it could also have potential drawbacks. If you're concerned, always speak to a dedicated property law solicitor for advice.
Legal costs: Drafting a deed requires professional legal assistance, which adds to the overall cost.
Changes require consent: Amending the deed requires agreement from all parties, which can be difficult.
Impact on mortgages: Some mortgage lenders may impose conditions or restrictions related to a deed of trust.
Is a deed of trust the same as a declaration of trust?
Most conveyancers will see a deed of trust and a declaration of trust as the same thing. They are very similar and the terms are often used interchangeably. A deed of trust includes a declaration of trust along with other statements that outline how the assets should be managed. Both documents can be used in property transactions, but the choice depends on the complexity of the arrangement and the level of detail required.
FAQs
What is a deed of trust on a house in the UK?
A deed of trust on a house in the UK is a legal document that outlines how the property is owned and managed. It is particularly used in cases where there is shared ownership or unequal contributions. It ensures that all parties’ financial interests are protected.
Can a deed of trust be changed?
Yes, but changes to a deed of trust require mutual agreement from all parties involved and should be formalised through a solicitor to ensure legal validity.
How much does a deed of trust cost?
Costs vary depending on the complexity of the agreement and the solicitor’s fees, typically ranging from £200 to £1,000.
Is a deed of trust legally binding?
Yes, a deed of trust is legally binding, provided it is correctly drafted, signed, and witnessed.
Does a deed of trust affect inheritance?
It can, as it outlines ownership shares and conditions, which may impact how property is distributed to heirs.
Do I need a solicitor for a deed of trust?
A solicitor may not be required, but it is highly recommended. Expert legal advice can ensure the terms are legally binding and protect your best interests.
Final thoughts
A deed of trust can be a huge help to look after your financial interests in property ownership. Whether you’re cohabiting or managing family contributions, it provides clarity and reduces the likelihood of disputes. However, it’s essential to weigh the benefits against the legal costs and complexity, seeking professional advice to ensure all terms are fair and enforceable. With a well-drafted deed of trust, you can enjoy peace of mind knowing your property agreements are protected.