When two or more people buy a house together, they have a choice of being joint tenants, or tenants in common. Joint tenants have an equal right to the property and an automatic entitlement to the other’s shares in the property should they pass away. Tenants in common can own different shares in the property, depending on the amount that they invest in it over the time that it is owned. Tenants in common can leave their shares to whomsoever they wish rather than their co-owner having an automatic entitlement to them.
A floating deed of trust, sometimes referred to as a commensurate share deed, comes into effect when people buy a house as tenants in common. It provides an accurate way of assessing the value of each person’s shares in that property at any specific point in time, based upon their contributions towards the property. This includes the initial deposit, as well as the cost of legal fees, searches, stamp duty, mortgage repayments, cost of home improvements, decorating, and more.
Tricky Conversations
It is a sad reality that not all relationships last and many couples leave an unmarried relationship feeling unhappy with the balance of return that they receive for their share in the property that they purchased with their ex-partner. This is especially true if one party moves out first and stops paying their way, yet remains entitled to 50% of the value of the home when it comes to be sold.
To avoid this situation, it is important that couples and investors have a serious discussion about finances and plan for how they will contribute to the cost of the property before they buy it, cementing their decisions in a commensurate share deed to ensure that they will not be caught out in the future, should they experience a change in personal circumstances.
Pros and Cons
Having a solicitor draft a commensurate share deed costs more than a Fixed Share Deed of Trust but can safeguard your investment should your situation change in the future, providing peace of mind. Many solicitors, such as Parachute Law offer this service at a fixed price in order to aid with budgeting.
It requires couples to have difficult conversations about money but equally can provide a valuable insight into your partner’s financial habits before you spend thousands of pounds buying property together. Having this conversation early allows you to change your mind before investing in a joint asset, should you be uncomfortable with your partner’s financial attitudes or habits.
If a parent, friend or investor is lending money towards the purchase or refurbishment of a property, having a commensurate share deed safeguards their investment and allows them to get their money back should the relationship fail.
Summary
If you are an unmarried couple or are buying an investment property with a friend as tenants in common, a commensurate share deed will allow you greater visibility of your share of the value of the property at any point in time and help to protect your investment in it. There is no mandatory requirement to have one drawn up, but doing so will simplify dealing with the finances associated with the property should the relationship break down in the future.
