The current condition of the UK economy means that property prices are rising year on year, which is why it is becoming increasingly common for more than one party to be financially involved in purchasing a property. It may be parents helping their child get on the property ladder, unmarried couples purchasing together or friends deciding to pool their money for a decent deposit.
When you have so many different parties putting in to the pot it can become confusing who owns what of the equity. The presumption in law is an equal split between the registered owners unless stated otherwise. However, it may be that couples have contributed unequal amounts and do not intend to share the equity 50/50 or parents wish to gift money to only their child where that child is buying with someone else. How does a party distinguish their input from other monies?
As everyone is usually on good terms at the beginning it is not considered what happens after the property is purchased and a party wants to “cash out” their interest. How much do they want back? Just the amount they put in? Any accrued interest? Or a fixed percentage of the current property value? Was the money accepted as a gift that is now being demanded back? If the lender is not a registered owner of the property (i.e. not named on the title deeds) and all that is in place is a verbal agreement between lender and borrower what is stopping the borrower from selling and pocketing the money?
There are options to resolve the problem of a party wanting to recover or protect their interest but many hinge on all parties remaining amicable and in agreement. It is hoped that any confusion can be resolved without issue but when this is not possible it can mean that legal action needs to be taken to clarify in the absence of any evidence what beneficial interest each party has in the property and how that interest can be protected and/or recovered.
Legal action may involve making an application under the Trusts of Land and Appointment of Trustees Act 1996 (TLATA) for the Court to decide (i) what interest a party has in the property and (ii) what legal orders the Court can make to allow the party to protect or recoup their interest. For example, orders can be made for a beneficial interest to be recorded on the property’s title deeds or for the property to be sold and the claiming party repaid their interest from the sale proceeds.
Making such an application can be lengthy, costly and can often lead to an irreconcilable rift between the different parties. Although the legal remedies are there it is better to be proactive rather than reactive and clarify intentions before money changes hands.
A popular method is a Deed of Trust. It can record all the relevant parties, the amounts they are each contributing, whether the amounts are fixed or a percentage, if repayment is to be made and in what circumstances (i.e. when the registered owners sell or remortgage) as well as any requirements for the registered owners to place a restriction on the title of the property in favour of those with a beneficial interest to prevent the registered owners from selling without the beneficiary’s consent.
It is hoped that a party’s interest is not disputed when there is only a verbal agreement to rely on but for peace of mind and to save time and money if problems do arise it may be best to have it in writing.