So, you’ve just put an offer in on a property. Congratulations are in order whether this is your first home or your fifth, as buying a home is a huge achievement. If you are purchasing a property with someone else, whether that person is your husband or wife, partner, family member or friend, it is a good idea for you to start thinking about what kind of protection is available for your financial interests.
What is a floating deed of trust?
A floating trust deed is a document that will be prepared by your solicitor, will be signed by both purchasers prior to completion and will then be registered at HM Land Registry on completion. In simple terms, a https://www.parachutelaw.co.uk/floating-deed-of-trust allows co-owners to measure their individual beneficial (monetary) interest in their property at a certain point in time, depending on what financial contributions they have made towards the property, and a specific formula is used to calculate this.
Joint tenants vs tenants in common
If you want to use a floating trust deed, then you must hold the property as tenants in common as opposed to joint tenants. According to gov.uk, tenants in common can, where appropriate, own different shares of the property. Joint tenants, in contrast, have equal rights to the property. Tenants in common can pass on their share of the property in their will, whereas, in contrast, the property automatically passes to the other owner upon the death of a joint tenant.
Why would I need a floating trust deed?
In the majority of cases, joint owners usually only worry about protecting the money that they used to purchase the property. They might do this by using a basic declaration of trust to fix the beneficial interest, for example, Mr X’s share of the property is 60% and Miss Y’s share of the property is 40% because Mr X put down a larger deposit than Miss Y when they purchased the property. Alternatively, they might do this by arranging for the return of what each owner put down as a deposit and then splitting the net proceeds of sale equally, i.e., Mr X is to receive £30,000 on the sale of the property and Miss Y is to receive £20,000 on the sale of the property (their respective deposits) and the remainder of the net proceeds of sale are to be split equally between the owners.
This is a perfectly acceptable way of doing things if both owners pay for their agreed proportion of the property costs whilst living together, but what happens if one owner ends up paying less or nothing at all? Isn’t it only fair that the beneficial interest (and therefore net proceeds of sale) of the owner who does continue to invest in the property increases?
There are certain things that will increase your floating share:
1. Deposit
The bigger the deposit, the bigger your beneficial interest will be.
2. Costs associated with the purchase of the property
You can record which owner paid for the legal fees, estate agent fees, moving fees and stamp duty fees etc. to reflect which owner should have an increased beneficial interest.
3. Mortgage payments
If one owner will be paying a larger proportion of the mortgage payments, then this can be reflected to allow this owner to increase their beneficial interest.
4. Home improvements
You can record which owner paid for anything that added value to the house and this can also be used to increase that owner’s beneficial interest.
