Derbyshire Legal Talk: July 2009
Legal Talk with Nelsons.
Question: My daughter and her partner are buying a house together. They are borrowing 60% of the purchase price from a lender and paying 10% each and I have agreed to put in the remaining 20%. I am looking at this as an investment and would like to know what the best way is to protect my position?
ANSWER: Firstly, as this is an investment you need to ensure that your daughter and her partner are taking appropriate legal advice in connection with their purchase and that a proper survey is undertaken of the property which in this case will almost certainly be required by the lender. In the purchase deed of the property to your daughter and partner I recommend that they buy the property as 'tenants in common'. By buying the property as 'tenants in common' the normal 'survivorship' rules will not apply as they would if they were buying as 'joint tenants'. This means that if either of them were to die, the property will not automatically pass to the other and the deceased's share will pass to whoever is entitled by Will or intestacy. Secondly, you will need to take advice about the Trust Deed. This is a document which will set out your daughter and her partner's share in the property as well as your own based on your respective contributions to the purchase price.Assuming that your daughter and her partner are going to be contributing to the mortgage repayments equally, they will each have a 40% share in the equity. This then leaves you to decide how you wish your 20% to be dealt with. You really have two choices:1. If your 20% share was equivalent to �20,000 you could demand that on any future sale you receive back the first �20,000 once the mortgage has been repaid but no more. Your investment is safe and you should not be unduly affected if the property were to reduce in value. You would however not benefit if the house were to increase in value.2. Alternatively, you could demand a 20% share of the equity in the property and its future proceeds of sale. This choice would mean that you would benefit from any house price increase but equally you will suffer if the price of the property were to drop in value.Most importantly, in the Trust Deed you will want a promise by your daughter and partner to pay all sums owing in respect of the mortgage including the monthly repayments and to indemnify you completely in respect of any liability to the lender. You could even request that your daughter and her partner charge their share of the property with the payment of all monies secured by the mortgage in exoneration of your share in the property. The Trust Deed should also contain a covenant that your daughter and her partner will not create any further mortgages or otherwise deal with or sell the property without your consent in writing. You might even enforce the position by demanding that a Restriction be put on the registered title of the property to this effect assuming that the lender agrees.