Will I get the money I/my family put into the property at the point of purchase back?

When I was asked to write an article, I thought of the questions that I commonly get asked. This was one of them: Will I get the money I/my family put in at the point of purchase back?

For the purposes of this article, I will be focusing on the law relevant to unmarried co-owners. Different rules apply for married co-owners.

There are two ways in which property can be held in the UK. The options are Beneficial Joint Tenants or Tenants in Common.

Where people hold the property as Beneficial Joint Tenants, they will together own the whole of the property and it will be presumed that they own the property equally. Their contributions towards the property are not protected either at the point of purchase (the deposit) or afterward (i.e. by way of payments towards the mortgage). Any monies advanced from third parties towards the purchase price (from relatives perhaps) will also not be protected. Owning the property as Beneficial Joint Tenants can be particularly aggrieving where one co-owner abandons the property, does not contribute towards the mortgage and then expects to receive an equal share of the net equity in the event of a sale or buy out. For most mortgages there is a ‘joint and severable’ liability meaning that it matters not who pays the mortgage or what contributions they make so long as it paid. If one co-owner fails to make payment then the lender will look to the other co-owner(s) for payment. This would be in the other co-owner(s) interest to avoid an adverse credit rating (and therefore an ability to move forward) and/or, repossession.

It can be costly to argue for the contributions towards the property back with no guarantee of success.

Where people own the property as Tenants in Common they own a specified share in the property. This is the only way to hold property to ensure that their contributions towards the property are protected. If you opt for Tenants in Common you can fix shares on the Transfer Deed (which will be a TP1 orTR1) or enter into a separate document called a Declaration of Trust.

With fixed shares, the shares may be equal, but they do not have to be. Holding the property as tenants in common in unequal shares may be desirable if you have made unequal contributions to the purchase price of the property. If, for example you paid 60% towards the deposit, your 60% share would mean that you get 60% of the equity back. These shares can be revisited if there is a change in circumstances in the future, which you and the co-owner both agree should be reflected in the proportions in which you own the property. For example if one of you pays a larger proportion of the mortgage repayments or the costs of any major works to the property, you may want your shares to reflect this. These calculations can be complex and you will need to keep accurate records of each person's contributions.

Alternatively, to avoid disputes in the future and complex calculations/record keeping, it is advisable for co-owners who hold property as Tenants in Common to enter into a Declaration of Trust A Declaration of Trust is a document that formally records that co-owners hold the property as Tenants in Common and sets out their respective shares in the property. If the co-owners sell the property, or separate, the Declaration of Trust will be referred to, to work out what their entitlement to the sale proceeds from the property will be. A Declaration of Trust can also record and protect any interests a third party who will not be named on the Title Deeds and/or mortgage may have, subject to lender approval. That third party could be a relative who has advanced funds to you, to put towards the purchase price.

In summary, a Declaration of Trust can:

• Confirm the extent of the co-owner(s) respective beneficial interests, even if a co-owner is not named on the Title Deeds or Mortgage.
• Set out any express terms that the co-owners want to include. These might include provisions to deal with a situation where one of the co-owners wants to sell or practical arrangements for day-to-day issues such as how the parties will arrange for maintenance and meet other expenses related to the property.

Key Takeaways:

1. If you are making a larger contribution to the purchase price and you would want that to be returned if the property is sold of your separate you should make enquiries of a Legal professional to obtain further advice in respect of holding the property as Tenants in Common and entering into a Declaration of Trust. The cost of a Declaration of Trust may be a small price to pay at the outset in exchange for what you may otherwise be foregoing in the event that the property is owned as Beneficial Joint Tenants.
2. If you do not know how you hold property, you should speak to a Legal professional.
3. If you own a property as Beneficial Joint Tenants currently, you can sever the tenancy so that you own the Property as Tenants in Common. This will result in you and the co-owner(s) owing an equal and identifiable share of the property still though you can still enter in to a Declaration of Trust specifying if the property should be held another way. You may wish to seek further advice in respect of severing a Beneficial Joint Tenancy.
4. It is possible to argue for the return of contributions towards a property, particularly if contractual principles have not been satisfied and/or there needs to be an equitable account. Speak to a member of the team who will be able to advise you further.