I have a client who is buying a property. He has a partner but they are not married and she is not contributing to the purchase or making any mortgage payments.
He will be the sole owner.
Client would like a DOT so that any future contributions his partner makes for the up keep pf the property will be reinbursed when the property is sold.
I know how to add a schedule for future payments into a DOT whereby there are two beneficial owners making contributions.
However I dont think the client needs a DOT at this moment as there are no current contribution made by the partner.
However he is insistant on a DOT now as his mortgage lender have said he should have one. If this would work how can I create this or is this pointless? I dont think I understand how this would work and surely he still needs an additional trustee?
What does he mean by upkeep? Why doesn’t he just pay for all the upkeep himself? The partner is only being reimbursed so is not getting an equity share. If he means major improvements then that’s a different matter.
I am assuming by upkeep he is not meaning basic running costs of utilities, council tax etc. presumably they are sharing those and neither is expecting those to be refunded?
It would be helpful to know more about what sort of expenditure they are looking to cover in any agreement they make.
Hi Sara, im sorry I wasnt very clear. I think it is just general maintenance and perhaps a new kitchen. I can understand she would want reimburment for this I just dont know how to add this a DOT if she isnt having equity in the property.
They are also sharing general bills so thats not a problem.
Sara is right of course. The clients need to focus on precisely what kind of expenditure they intend to justify the payer’s acquiring an equitable interest in the house and why they do. It may be that if one makes all the mortgage payments the payment by the other of even maintenance costs may be seen by both as a quid pro quo. It is good to know that the couple are taking advice at an early stage and that you are familiar with cohabitants as co-owners from the outset. I do not see why a DOT and cohabitation agreement cannot be made to apply apply where the declarer is initially a sole beneficial owner but the agreement contemplates that defined expenditure will entitle the other to an equitable interest in future. The mechanism that adjusts the respective interests of initial co-owners can still be drafted to operate when one starts out with no interest.
A salutary point is that each adjustment is a disposal and acquisition of an asset but CGT will not matter as long as PPRR is available (or once they get married, if they do!). A practical point is that if day to day expenditure counts one does not want to be adjusting on a daily basis but only at intervals. Determining how large the adjustment should be requires some valuation mechanism if only in default of agreement. It is trite knowledge that even significant capital improvements may not contribute commensurately to the market value. An alternative approach is for the expenditure to be regarded as a debt (these agreements usually declare a mutual intention to create legal relations) to be paid out of the sale proceeds (tying into the agreement’s provisions regarding sale/termination of occupation by either or of the relationship itself). Meanwhile the debt could be secured by an equitable charge. An individual can’t create a floating charge but this would be a fixed charge securing an amount which might decrease as well as increase if the agreement allows repayment of part.
A further protection would be for the sole owner to be required vest the legal title in both names once the share of the other reaches a threshold percentage.
Thanks for the reply. Im very new to this and have less than 2 years experience so you may have to dumb this down a little.
The sole ower does not want to give any equitable interest to his partner even if she was to contribute to major renovations. He is happy for her to be reinbursed from the proceeds of the sale.
He is wanting a declaration of trust but i do not know how to create this unless giving an equitable interest.
Is it possible to just include a schedule of additional payments made without equitable interest? Or would you suggest a cohabitation agreement for this specific matter?
I think the answer is that if the sole owner will remain the sole legal and beneficial owner then there is a no trust. If no trust, then a declaration of trust cannot be the correct document.
It actually sounds like a combination of:
a contract between him and the partner that he will reimburse her for certain expenses when the house is sold (and presumably not before); and
potentially a further term in which the partner confirms that they do not, and will not, have any beneficial interest in the property.
These might stand alone or be built into a wider cohabitation agreement.
If the mortgage lender is requiring a DOT then they or the client needs to explain what they want and why in the absence of any trust. It may be that the mortgage lender thinks the partner will have an interest or maybe someone is using DOT when they actually mean cohabitation agreement.
Then you just need a cohabitation agreement and an equitable charge for what is owed might be an idea. The mortgage, with him as sole borrower one hopes, needs to be consulted in case such a charge needs consent or notification. Do use a good precedent which are readily available.