What is a declaration of Trust (DOT)?
There are two interests in any property – beneficial interest and legal interest. The legal interest is held by those who own the Property and are registered at the Land Registry as proprietor(s). The beneficial interest is the financial interest in the Property.
A jointly held property can be held as either joint tenants or tenants in common. As joint tenants, you are deemed to hold the property in equal undivided shares. In other words, you will be regarded as owning the whole of the property and the net proceeds of its sale belonging to all owners as one. If one owner dies, the property will automatically vest to the survivor, regardless as to the contents of their Will (or rules of intestacy if there is no Will). If you hold the property as tenants in common, it means that you each hold a separate divided share of the property. You can hold in any proportion which can be either equal or unequal. If one owner dies, the deceased’s owner’s share will pass in accordance with their Will or under the rules of intestacy if there is no Will.
When holding the property as tenants in common, a DOT would be recommended. A DOT is a legal document that confirms the terms on which the legal interest is held. A DOT usually records the shares in which the property is held as well as other terms agreed by the parties.
A DOT may cover joint owners that hold the property on trust for themselves as beneficial owners. However, it may be that a third party has a beneficial interest in the property which the DOT seeks to provide for.
A DOT records the terms on which beneficial interest is held and is evidence of such agreement. It can be used on a future sale/transfer to show how the net proceeds of sale are to be divided or shares to be transferred.
A DOT can include information such as (this list is not exhaustive):
- The respective contributions towards the purchase of a property;
- How the equity of the property is to be divided when the property is sold;
- What will happen if one owner wants to sell and the other does not;
- How each owner is to contribute towards repair of the property and other outgoings, to include utilities and mortgage payments.
Why is a DOT important?
It records the position/agreement to avoid any assumptions, misunderstandings or doubt as to the shares and general ownership of a property. It could be crucial in avoiding costly litigation if there is a dispute in the future.
Does a Will override a DOT?
No. A DOT outlines the shares a person has in a property which is to pass in accordance with the terms of their Will. It is therefore important to have an up to date Will. If there is no Will, the rules of intestacy will apply.
Does a DOT affect your mortgage?
Many lenders will require a DOT to be reported to them, especially if these give an interest to a third party. You must therefore ensure that your conveyancer is aware if you have one or intend to have one in place.
For further information on anything mentioned in this article, please contact Ashton Sutcliffe on 01626 202370 or email ashtonsutcliffe@wbw.co.uk.
WBW Solicitors has offices in Axminster, Bovey Tracey, Brixham, Chard, Exeter, Exmouth, Honiton, Launceston, Newton Abbot, Paignton, Seaton, Sidmouth, and Torquay.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.
