Protecting parental contributions to property purchases
(Can a joint beneficial owner force the sale of a property?)
With many first-time buyers struggling to save up a deposit for a home, it is becoming more and more common for parents to help their children with the purchase of a property by contributing towards the deposit.
Parental contributions are often made by way of a gift but without any formal documentation and although parents may be keen to help their children get on the property ladder, it is also important to consider how this investment can be protected and how it can be realised in the future should the need arise. Typically this might be in the event of a son or daughter having bought a property jointly with a partner or spouse and then later separating/divorcing, or where there is a family fall out with the parents.
Sadly, family disputes are all too common and although many may think a formal agreement is unnecessary in a family scenario, it is always a sensible idea to document the contribution either in a Deed of Gift or by way of a Declaration of Trust. A Deed of Gift can be used to make an outright gift, however a Declaration of Trust may be more appropriate where parents would prefer to protect their investment and this type of agreement can be used to outline exactly what would happen in circumstances where the property needs to be sold or where one party were to buy another out.
In the event of a parent wishing to realise their share of the beneficial interest in a property and their son or daughter being unable to buy them out and perhaps refusing to sell, the parent can make an application to court to force the sale of the property under the Trusts of Land and Appointment of Trustees Act (TLATA) 1996. However this is the ‘nuclear option’ and it is always preferable to come to an agreement outside of court, although this option fortunately does provide some recourse for parents needing to realise their investment where there has been a falling out.
Although the parent may not be a legal owner of the Property (i.e. named on the legal title), they do have an express beneficial interest by virtue of the Declaration of Trust. As a beneficial owner, they would be entitled to make an application to court for an order for sale. The likelihood of success of such an application would depend on the construction of the Declaration of Trust and on all the circumstances.
The court has fairly wide discretion in deciding whether or not to make an order and can take into account relevant factors such as:
- The intentions of the parties who created the trust;
- The purpose(s) for which the property is held;
- The welfare of any children who live in the property;
- The interests of any secured creditor of any beneficiary.
There is some case law to suggest that the purpose for which a trust is created over a property can be significant in relation to the court’s decision, for example, if the purpose of the property is to provide a family or matrimonial home and that purpose is ongoing. In the case of Jones v Challenger 1961, neither party had a right to demand the sale of the property while that purpose still existed, for that might defeat the object behind the trust; but with the end of the marriage that purpose was dissolved and the duty to sell was restored. Although this case pre-dates TLATA 1996 and does not relate to parental contributions but instead concerned a trust for sale, it remains a useful illustration of the purpose for which a trust was made and when that purpose comes to an end. However, the majority of this caselaw relates to situations where a legal owner/trustee is insisting on the sale, rather than a beneficial owner.
Evidence of the purposes of the trust are primarily found in the Declaration of Trust itself, as well as from the surrounding circumstances, although on the whole such purposes may be expected to be consistent with the contents of the Declaration.
Documenting the financial arrangements between joint property owners can often help to avoid the possibility of a dispute arising in the first place, however it is also very useful to have a Declaration of Trust in place in the event that this does occur.
If you would like any help or advice in relation to the circumstances set out above, please do get in touch.
