Buying property with family and friends? Legal expert David Edwards advises how to avoid problems

As the Bank of Mum and Dad is increasingly called upon to help first time buyers get on the property ladder, lawyer David Edwards advises how to avoid running into problems.

With very tight mortgage lending and lenders insisting on large deposits, more and more parents are helping members of the family to get onto the property ladder. And as well as families helping out, there is also an increasing trend for friends to purchase property together. 

How do you protect your “investment” and how do you regulate the arrangements between members of a family or friends who co-own property? 

The answer in both cases is a declaration of trust. 

This is a legal document that sets out: 

- How the sale proceeds are split when the property is sold. 

- Who can decide that the property is sold.

- What happens if one person wants to sell and one does not.

 - Who is responsible for paying the mortgage and other outgoings. 

- What happens if one of the co-owners dies. 

Just starting to think about these matters makes many people realise that co-owning or contributing towards the purchase of a property is a lot more complicated than simply writing out the cheque.

Our experience is that a carefully thought through declaration of trust is the best way of dealing with all of these issues, deciding what will happen at a time when everybody is talking happily with each other! 

The actual declaration of trust need not be complicated.  It simply records what the parties would like to happen in a number of circumstances. Although every declaration of trust will be different, typically they will provide:

-How the proceeds of sale of the property will be divided.  This might be, for instance, that the mortgage is paid off and then some money is returned to the parents and the rest is split.

-What will happen if one owner wants to sell and the other does not. For instance, the owner who wants to remain would be given three months to buy out the owner who wants to sell at an agreed price. 

-The declaration can also cover who should benefit from an increase in value as a result of improvements being carried out. 

Finally, at the same time the declaration is completed, it is important to make sure that the legal title to the property is registered correctly and the Wills of the owners are reviewed to see if any changes are necessary.

Having a declaration of trust can avoid difficult family and friend issues, particularly if relationships are starting to break down. They are invaluable to help protect the interests of parents or other friends if one of the owners becomes involved with, say, a failing business or a relationship or marriage breakdown. 

This article attempts to set out the main benefits a declaration of trust brings to joint ownership or joint funding of property.  As always, it is important that you obtain legal advice specific to your requirements before acting or omit to act. If you would like more information then contact David Edwards by email, djedwards@bbc-law.co.uk 

David Edwards is Managing Partner and Head of Private Client at Burt Brill & Cardens, a well-known firm of Brighton solicitors specialising in looking after people and their businesses. He is also a member of STEP the worldwide organization for specialist Private Client practitioners and is currently President of Sussex Law Society. For more information about David or Burt Brill & Cardens visit www.bbc-law.co.uk