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The Importance of a Declaration of Trust

View profile for Lily Meyer

One house sale, two years of our time and a court hearing later, we finally managed to close our file on a sale transaction in which the clients could not decide how to divide the sale proceeds.

Back in September 2012 we were instructed by a couple who were going through a messy break up. We ensured we had matching instructions from both of them throughout the transaction and everything seemed to be going smoothly. The first sign of any trouble came when the sale was due to complete and we asked for instructions on where to send the funds.

The couple held the property as tenants in common and had not entered into a declaration of trust at the time of purchase, confirming how their share in the property would be held. Despite various attempts to to obtain matching instructions on the division of sale proceeds, months and months passed without any success. Both parties instructed other solicitors/representatives to try to negotiate but every time we thought an agreement was finally on the cards, we ended up back at square one just days later. On a number of occasions we threatened to commence court proceedings so we could finally remit the funds and close our file but the threat alone was not enough to get these two to start talking.

We finally commenced proceedings 18 months after the sale completed. It was a difficult decision, and one we put off several times – we’re not keen on suing clients! The couple eventually reached agreement on how to split the funds on the day of the hearing and a week later, upon receipt of the court order, 2 years 6 months after we were initially instructed, we finally remitted the funds to the relevant parties. The hassle and costs of the Court proceedings finally focused their minds on an amicable solution so we feel vindicated that commencing Court proceedings was the right thing to do to resolve this deadlock.

Of course we were not the only ones who spent time, money and effort on this matter. As far as the clients were concerned they had lost over 2 years of their lives fighting over what ended up being very little money. That small amount was reduced further by legal costs.
If the two of them had known how this would turn out at the time of purchase, they would have almost certainly agreed to a declaration of trust and avoided all these problems. Certainly if we had acted for them on the purchase, they would most likely have agreed a declaration of trust as we pretty much insist, that any couples purchasing a property as tenants in common, enter into a declaration of trust.

A declaration of trust sets out in writing their intentions of how the proceeds of sale of the property are to be dealt with in the future. It is essential that a declaration of trust is prepared before any disagreements arise as its purpose is to safeguard all parties and make it clear how the property purchase was funded and how the division of sale proceeds will be dealt with.

Although not being the most romantic proposition, or a discussion that you would wish to have with your partner, it is nevertheless an important conversation to have when purchasing a property. By dealing with these matters at the outset it can avoid problems further down the line and uncertainty as to whether you will get back what you put in to the property. Hopefully it will never need to be used but without one, the consequences can be dire and costly.

We would ask all potential purchasers to take note of this unfortunate situation and take our word for it from experience that a declaration of trust may be one of the most important documents you ever sign!