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Making a property agreement enforceable

including wills and probate
Thackley
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Making a property agreement enforceable

#256125

Postby Thackley » October 5th, 2019, 8:55 pm

Background: I am B's father and looking to protect her interests. B and M bought a property together approx 2 years ago. It was purchased with a substantial cash deposit from B and a joint mortgage based largely on M's income. The relationship fell apart quite quickly and B moved out over a year ago. M continued living in property and continued to pay the mortgage. B's original investment in the property remains. Despite the fact that B is currently travelling around the world and unlikely to return to UK much before mid 2020, M recently asked B to "takeover the mortgage". It transpires that M will be moving out of the property and the area in the near future. It seems unlikely that M will be willing (or have the resources) to continue paying the mortgage once she leaves. B and M do not have any deed of trust between them and the likelihood of reconciliation is slim to none.

I am not seeking advice on what to do about the property. I understand the options available and the complications caused by the mortgage.

I shall shortly be entering into discussion with M on B's behalf about dealing with the current mess. Once I have agreed a position with M which, ideally, will involve her effectively relinquishing her interest in the property, I am looking for some way of making this legally enforceable. I don't want, at this stage, to change the ownership of the property because of the frictional costs involved. What I want to close down is M's ability at some stage in the future to welch on any agreement I might reach with her now.

Given that the asset involved is property, as opposed to some other type of physical or financial asset, is what I am looking to achieve a practical proposition? (If it is I would, no doubt, get a suitable professional to draw up the appropriate legal document for agreement between B and M.)

PhaseThree
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Re: Making a property agreement enforceable

#256131

Postby PhaseThree » October 5th, 2019, 10:57 pm

Some clarifications need I think.
The property is mortgaged, B can't (curently) pay the mortgage and M doesn't want to pay the mortgage so who does get to pay ? You I guess ?
I think the problem here is that M and B have a legal contract with the mortgage company - do you intend this contract to be terminated or modified ?

MyNameIsUrl
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Re: Making a property agreement enforceable

#256176

Postby MyNameIsUrl » October 6th, 2019, 11:43 am

Thackley wrote:... get a suitable professional to draw up the appropriate legal document for agreement between B and M.)

I think the key word is in your heading: 'enforceable'. I speak not as a legal expert but as someone who was in a not-too-dissimilar position from where you are now. I used a solicitor to draw up a comprehensive legal document between two parties, at a cost approaching £2k. I took great comfort from having this in place as things subsequently went badly wrong. I later met with a litigator at the same firm of solicitors with a view to taking legal action, to be told it could cost around £25k with little guarantee of success.

So my message is, in discussions with legal advisers, be clear on what will be enforcable in practice - having a legal document is in itself no guarantee.

Dod101
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Re: Making a property agreement enforceable

#256192

Postby Dod101 » October 6th, 2019, 1:03 pm

The OP says in his post not to comment on what to do with the property, but that seems to me to be the cleanest and maybe the only solution. Sell it, repay the mortgage and for B to extract the cash deposit, leaving the balance for M. Take the lesson from it and move on.

Dod

Chrysalis
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Re: Making a property agreement enforceable

#256196

Postby Chrysalis » October 6th, 2019, 1:24 pm

I agree with Dod. IANAL but if the OP plans to leave M named on the joint mortgage, and as a joint owner, I am not sure there is any way (enforceable or otherwise) to remove M’s interest in the property. And anyway having contributed to the mortgage and having had joint ownership, she would surely have a claim to some of any profit realised from sale.
Obviously it’s a difficult and complex situation, and imo the solution should not add to the complexity but aim to simplify.

dspp
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Re: Making a property agreement enforceable

#256211

Postby dspp » October 6th, 2019, 3:07 pm

Force M to sell out to B.

regards, dspp

Dod101
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Re: Making a property agreement enforceable

#256220

Postby Dod101 » October 6th, 2019, 3:45 pm

dspp wrote:Force M to sell out to B.

regards, dspp


I doubt that M could be forced to sell out to B and in any case how would you value M's interest considering all she has done it would seem is paid the mortgage. Still think a sale is the only clean way to deal with this.

Dod

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Re: Making a property agreement enforceable

#256222

Postby dspp » October 6th, 2019, 3:56 pm

Dod101 wrote:
dspp wrote:Force M to sell out to B.

regards, dspp


I doubt that M could be forced to sell out to B and in any case how would you value M's interest considering all she has done it would seem is paid the mortgage. Still think a sale is the only clean way to deal with this.

Dod


"M recently asked B to "takeover the mortgage" " provides the forcing tool in this particular instance. Even if they do sell in the open market they will still need to decide how to divvy up the profit/loss. An internal sale between them is no different in that respect. Not an easy situation so good luck to everyone in resolving this.

regards, dspp

Chrysalis
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Re: Making a property agreement enforceable

#256226

Postby Chrysalis » October 6th, 2019, 4:09 pm

My understanding was that joint owners can each force a sale. I might be wrong, and of course it might take a court order. But in any case it doesn't sound like M would object to a sale. In fact it looks as though both M and B have relinquished responsibility for either living in the property or paying the mortgage! And presumably it is the OP picking up the pieces.
Agree, not an easy situation. My feeling is though that resolution by getting rid of the property may allow all concerned to move on, even if it may not be the most financially advantageous solution for B or the OP.

MyNameIsUrl
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Re: Making a property agreement enforceable

#256235

Postby MyNameIsUrl » October 6th, 2019, 4:55 pm

Perhaps someone can comment on what happens to the proceeds if a sale is made, forced or not? I would have thought the solicitor acting for the vendors B and M would want to transfer 50% to each of them. B would at that point be losing half of the initial deposit. Is this what the 'appropriate legal document' mentioned by the OP is meant to prevent?

Clitheroekid
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Re: Making a property agreement enforceable

#256258

Postby Clitheroekid » October 6th, 2019, 8:58 pm

It's difficult to understand what you want to achieve. As others have said, if neither B nor M wants to live in the property the obvious solution is just to sell it and divide the proceeds. There may be arguments about who gets what, but better to argue over money sat in a bank than a property that's costing money every month.

If, for any reason, B wants to retain ownership of the property then I assume you're talking about an agreement by which B would buy M's share. It's perfectly possible to have a contract for such an interest that would be completely legally binding, but it's not something that you should attempt to draw up yourself, and you'd need a legal professional to deal with it.

I used a solicitor to draw up a comprehensive legal document between two parties, at a cost approaching £2k. I took great comfort from having this in place as things subsequently went badly wrong. I later met with a litigator at the same firm of solicitors with a view to taking legal action, to be told it could cost around £25k with little guarantee of success.

That's very rarely the case. A well-drawn agreement can be sued on with a high degree of certainty, and the costs involved would normally be recouped from the opponent.

It may, however, say a lot about the quality of the agreement that was drawn up. It sounds like the litigator realised his colleague had cocked up and that his advice was aimed at protecting both the colleague and the firm's professional indemnity premiums!

I suspect you would have got a very different answer if you'd gone to a different firm - if the agreement really had been so useless you'd probably have been advised to sue the first firm.

Chrysalis
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Re: Making a property agreement enforceable

#256262

Postby Chrysalis » October 6th, 2019, 9:32 pm

@clitheroe kid in the OP's post its says the aim is for M to 'relinquish her interest' in the property but NOT to 'change the ownership'. - presumably because that means remortgaging which costs money. I think that's the difficulty - hard to see how you can do one without the other.

Thackley
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Re: Making a property agreement enforceable

#256343

Postby Thackley » October 7th, 2019, 2:35 pm

Many thanks to all who have taken the trouble to reply.

Some further information. Attempts were made to sell the property earlier this year by M (with B's agreement) but were not successful, the pricing was probably over-optimistic and it was subsequently withdrawn from the market. M is looking to walk away at the end of the month with a "clean break" and, as well as wanting B to take over the mortgage, M has asked for a cash sweetener to recognise that she has been paying the mortgage on her own for the majority of the time B and M have owned the property.

I have no issues with any of this. The mortgage will be paid by B (with support) after M leaves and B will decide (with support) what she wants to do with the property. Obvious options are sell, rent or keep for B to live in on return to UK. These are not all mutually exclusive. At the moment, M just wants out of both the property and any continuing relationship (financial and otherwise) with B. B feels much the same in terms of the relationship. M will definitely be moving out of the property and the area in a few weeks time. Based on the local market, a sale is unlikely to yield much, if anything, in the way of gain. Any capital loss would fall to B, since M has no real financial resources to speak of. A sale which (desirably) avoids such loss may take some time to achieve.

The plan, at least for the short term, is to come to a settlement with M and keep the mortgage and ownership unchanged. The frictional costs involved in transferring the ownership solely to B are likely to be substantial. The existing mortgage is a 5 year fixed rate product with 3 years left to run and hefty penalties for early redemption. B's employment history means she is unlikely to be granted a mortgage in her sole name in the near future. In any event, a new mortgage application will likely involve application fees, etc. I could take a stake on B's behalf with a buy-to-let mortgage (I'm an experienced and current landlord) but that would add the 3% stamp duty charge on additional property into the mix. Even at the lower end of possibilities, the frictional costs shared between B and M would more than wipe out the sweetener M is seeking. I'm reasonably sure that M will accept the plan to avoid this.

I'm confident that agreement can be reached with M, that is fair to both B and M. M will get a cash sum, will be idemnified against all financial obligations in respect of the property (eg mortgage payments, council tax, etc) and will agree not to enforce any of her rights of ownership (to reside there, receive rent, receive sale proceeds, etc). B will take on all financial obligations and rights of ownership. What I'm less confident about is that M won't have a change of mind 3, 6 or 12 months down the line - including possibly after the property is sold - and claim she has lost out. Hence my OP about making an agreement stick.

I'm also aware, as I'm sure those reading this are, that the plan will violate the current mortgage conditions. But this won't be the first (or last) mortgage where this happens. I take the view that provided the mortgage payments are paid as they fall due, the lender will have no reason to make any enquiries and that the risks are manageable.

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Re: Making a property agreement enforceable

#256359

Postby Chrysalis » October 7th, 2019, 3:16 pm

Thanks for explaining further. Clitheroekid may be able to add further.
From the lay persons perspective, I agree with you that it is difficult to rule out a change of heart on Ms part to make a claim against the property when it is sold. If she retains ownership and is on the mortgage, presumably she’d have a case.
If you want to make it ‘enforceable’, I assume that would mean a legal document. And that might be tricky if the terms of your agreement violate the mortgage terms. The latter point might also strengthen any claim of Ms.
So I think the choices probably come down to - take the risk of fudging it, and hope it works out, or take the financial hit to achieve a clean and watertight break.
Or alternatively, perhaps you could promise M her share of the cash when the house is sold, or the mortgage changed, at the end of the 5 year term?

It’s a cautionary tale for sure. What would you do differently with the benefit of hindsight? (Genuine question.I think many of us can imagine ending up in a similar situation).

Avantegarde
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Re: Making a property agreement enforceable

#256392

Postby Avantegarde » October 7th, 2019, 5:18 pm

Perhaps I missed something but surely the simplest thing would be for the OP to buy out M's share of the property? It can't be that hard to do if both the OP and M can agree a price.

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Re: Making a property agreement enforceable

#256397

Postby Gaggsy » October 7th, 2019, 5:37 pm

Avantegarde wrote:Perhaps I missed something
4th paragraph of OP's 2nd post

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Re: Making a property agreement enforceable

#256402

Postby sg31 » October 7th, 2019, 5:47 pm

Avantegarde wrote:Perhaps I missed something but surely the simplest thing would be for the OP to buy out M's share of the property? It can't be that hard to do if both the OP and M can agree a price.


The OP already owns other properties so would have to pay 3% of the prchase price of his share of the property.

I think the OP trying to leave things as they are is inherently risky. Leaving M as an owner but taking away her ownership rights seems complicated. Once M signs away her rights she will consider the property has nothing to do with her. If she gets in a relationship and enters into another joint ownership purchase she wouldn't even consider disclosing her ownership of the old property and she would fail to pay the extra stamp duty on the second property. She would fall foul of the tax laws and could end up paying fines/penalties.

I can see the temptation of fudging the ownership but personally I'd take the hit and rent the property out.

sg31-retired landlord of rental properties.

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Re: Making a property agreement enforceable

#256407

Postby Arborbridge » October 7th, 2019, 6:05 pm

What a rotten position to be in, but I am sure that paying M our whilst still leaving her as an owner is storing up trouble for later - and it could be expensive trouble. It feels intuitively the wrong way to go.

Better to come up with a cleaner solution, even if it does mean significant cost up front, such as changes to the mortgage.

Arb.

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Re: Making a property agreement enforceable

#256576

Postby Avantegarde » October 8th, 2019, 12:48 pm

Perhaps the OP could show us some figures? I still don't see why buying out M would be so expensive. The solicitors costs would be a few hundred quid at most for the sale agreement and to process a Land Registry transfer document. Would a replacement name on the mortgage really trigger big costs charged by the lender? As for 3% extra stamp duty (as it would be a second home for the OP), only half the ownership and value of the property would be being sold and bought. Would the stamp duty be a big sum? What pay-off would M require? For the peace of mind, and the ability to later sell the property unhindered, I would have thought that spending a few thousand quid in total to tidy up this unfortunate state of affairs would be well worth paying. If the costs come to tens of thousands then that would be (in my mind) another matter.

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Re: Making a property agreement enforceable

#256577

Postby Clitheroekid » October 8th, 2019, 12:58 pm

Thanks for the further explanation. However, although you made it clear that you were not seeking advice on what to do about the property the more I read your post the more convinced I became that the only sensible solution is to sell it.

Although, as I said in my previous post, it's technically possible to enter into a contract with M in the terms set out I would foresee considerable problems. For a start, M would need to be separately represented - one solicitor could not possibly act for both B and M due to the conflict of interest. This would mean that she would be advised of the inherent problems in this type of agreement, not least that she is effectively unable to buy any other property while she's tied into this one.

She would also be advised that she would be legally obliged to tell the mortgage lender that she had permanently vacated the property, which could cause problems for B.

If you were planning to rent the property out there would be tax issues for M, as the rent received would, on the face of it, be 50% hers. Although you could get round this she would have to satisfy HMRC that she had no entitlement to it, which is yet more hassle.

There are also potential insurance issues that would need to be addressed if she’s no longer going to be living in the property.

All things considered, the likelihood is that she would be advised not to agree to the proposal.

Even if she insisted that she was happy to proceed, such comprehensive advice won’t be cheap. As the proposed cash sweetener isn't going to be a substantial amount B would probably also have to agree to pay M's legal fees, otherwise they'd probably absorb too large a chunk of the sweetener.

You say that a sale would be "unlikely to yield much, if anything, in the way of gain". However, depending on where the property is and the strong possibility of a post-Brexit decline in value, particularly if it's in London or the south east, it may well be better to get out now on a neutral basis than in a year’s time at a loss. Admittedly, this is purely a matter of opinion as to how the market will move, but it's a factor to be considered.

Taking everything into account it's difficult to see any argument for not selling. Is there a particular reason why B wants to retain ownership?


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