How to Resolve Declaration of Trust Disputes

George Harrison January 2, 2025

Introduction

A Declaration of Trust is a crucial legal document that outlines the beneficial interests in property ownership among multiple parties (often two people who have purchased a property together). While it serves to protect the rights of each party (and set in stone their obligations and responsibilities), disputes can and do arise, often leading to a long-drawn-out war fought on the battlefield of litigation.

This comprehensive guide is designed to help you to understand the intricacies of Declaration of Trust disputes, common issues, legal grounds for challenges, and how such a dispute can be resolved successfully.

How does a Declaration of Trust work?

A Declaration of Trust is a legal agreement that specifies the financial contributions and beneficial interests of each party in property co-ownership. It outlines who is responsible for mortgage repayments, contributions to the deposit, how property shares are divided on a sale of the property, and what actions should be taken in the event of unforeseen circumstances (i.e., if a co-owner passes away or becomes mentally incapacitated). For a Declaration of Trust to be legally binding, it must be agreed upon by all parties, clearly communicated, and comply with relevant laws and regulations.

A Declaration of Trust may be deemed invalid if it fails to meet the necessary legal requirements, namely:

For a Declaration of Trust to be enforceable, it must be in writing;
All parties involved must sign the document for it to be considered valid;
The document should clearly outline the property’s details, ownership shares, and any other relevant terms; and
If one party is coerced into signing the document, its validity can be challenged.

If a Declaration of Trust is found invalid, the property may be treated as if no such declaration exists, and legal ownership will be determined according to the law and relevant title deeds.

What are the key components of Declarations of Trust?

Key Components of a Declaration of Trust

Description

Ownership Proportions

Specifies how much of the property each party owns.

Responsibilities

Details what each owner is responsible for, including financial obligations.

Decision-Making Processes

Explains how decisions about the property will be made.

Dispute Resolution Mechanisms

Provides methods for resolving any disagreements that arise.

What are the Common Issues in Declaration of Trust Disputes?

There are several main ways in which a dispute can arise in relation to Declarations of Trust:

Misrepresentation or Undue Influence: If a party believes that their consent was obtained through misrepresentation or undue influence, this can lead to disputes. It’s essential to ensure that all parties are fully informed and voluntarily agree to the Declaration of Trust.
Financial Contributions: Disagreements over financial contributions to the property purchase or mortgage repayments are common. Clients should keep detailed records of all financial transactions to avoid disputes.
Beneficial Interests: Conflicts may arise over the true beneficial interest in the property, especially if names are not on the Land Registry title deed. Clear documentation and communication are vital.
Changes in Ownership / Distributions of Proceeds: Disputes over changes in ownership or the distribution of proceeds from the sale of the property often occur when parties have different interpretations of the Declaration of Trust.
Lack of Clarity: Ambiguities or vague clauses in the Declaration of Trust can lead to differing interpretations and conflicts. Clients should seek legal advice to ensure the document is clear and comprehensive.

What are the Legal Grounds for Challenging a Declaration of Trust?

A Declaration of Trust can be challenged on several legal grounds:

Misrepresentation: If a party was misled about the terms or implications of the Declaration of Trust, they may have grounds to challenge its validity.
Undue Influence: If consent was obtained through coercion or manipulation, the Declaration of Trust can be contested.
Lack of Legal Capacity: If a party lacked the legal capacity to enter into the agreement, such as due to mental incapacity or age, the Declaration of Trust may be voidable.
Duress: If a party was forced or threatened into signing the Declaration of Trust, it can be challenged.
Non-Compliance with Legal Requirements: If the Declaration of Trust does not comply with relevant legal formalities (such as being in writing), it may be declared invalid.

Resolution Process

Resolving a Declaration of Trust dispute typically involves several steps:

Seek Legal Advice: seeking advice (preferably at an early stage) is vital to understand the grounds for any challenge to the Declaration of Trust and the best course of action to take. Our experienced and knowledgeable experts can provide suitable and tailored advice on the validity of the Declaration of Trust in question and the required steps to challenge it and/or to resolve the dispute.
Negotiated Settlement: most disputes are resolved by way of a negotiated out-of-court settlement, usually with the assistance of solicitors advising on a case that a claimant is threatening to take to trial. To settle the dispute, once the negotiations have been finalised, all relevant parties involved sign a settlement agreement and agree upon an order to submit to the court to bring the proceedings to an end (in the event they have already started). Settling disputes out of court this way is understandably faster, cheaper, and less stressful, while offering greater control over the outcome.
Mediation: where parties may fail to negotiate a settlement themselves, they can turn to mediation, a prominent form of alternative dispute resolution (ADR). Mediation is a structured process in which a neutral third party facilitates discussions between the disputing parties to help them reach a mutually agreeable solution without resorting to court proceedings. This approach encourages open dialogue, fosters understanding of each other’s perspectives, and helps parties move beyond entrenched positions to find common ground.
Court Proceedings: If mediation fails or an out-of-court settlement cannot be reached, court proceedings would likely be required to help resolve the dispute. A judge will determine the validity of the Declaration of Trust and the respective rights, obligations and responsibilities of each party. Court proceedings are inherently uncertain and can be lengthy, costly, time-consuming and emotionally draining, but they provide a definitive resolution.
Deed of Variation: For minor changes, a Deed of Variation can be used to amend the Declaration of Trust without creating a new agreement. This can be a simpler and less contentious way to resolve a dispute, but the Declaration of Trust would most likely include a clause which states that both parties must together agree to the Deed of Variation. Such agreement may not be forthcoming immediately if the parties are in a dispute, but mediation may be successful (as per Case Study 3 below).

Case Studies

To help you to better understand the different types of Declaration of Trust disputes that can arise (although this list is endless), here are some case studies:

Case Study 1 – Misrepresentation

Person A claimed that they were misled about the terms of the Declaration of Trust, resulting in a dispute over the division of property shares. The court found that misrepresentation had occurred, and the Declaration of Trust was declared invalid.

Case Study 2 – Undue Influence

Person B alleged that they were coerced into signing the Declaration of Trust under pressure from a family member. The court ruled in favour of the claimant, citing undue influence.

Case Study 3 – Financial Contributions

A dispute arose over financial contributions to the property. Person C argued that their contributions were not accurately reflected in the Declaration of Trust. Through mediation, the parties reached an agreement to adjust the Declaration of Trust by way of a Deed of Variation. You can find out more about our firm’s mediation services here.

Beneficial Interest Disputes

At the core of many trust disagreements is the concept of beneficial interest, effectively the rights individuals have to enjoy the benefits of a property, like earning income from it or living there. Disputes often arise about how these benefits are divided and shares between the co-owners of the property, including upon sale or transfer of the property.

There are several key factors which could fuel such a beneficial interest dispute:

Contributions to Purchase Price: Issues may come up regarding the amount each party contributed;

Relationship Changes: Events such as divorce or the end of a business partnership can lead to conflicts; and
Misinterpretation of Terms: Confusion can occur over the specific rights and benefits outlined in the trust agreement.

What preventative measures can be taken to prevent Declaration of Trust disputes?

To prevent Declaration of Trust disputes, you should consider the following matters at the outset and throughout the lifetime of the Declaration of Trust:

Ensure that all parties fully understand the terms and implications of the Declaration of Trust. Clear communication can prevent misunderstandings and disputes;
When drafting a Declaration of Trust, it’s essential to seek legal advice to ensure it complies with relevant laws and accurately reflects the intentions of all parties. On many occasions, we will be instructed on a dispute where the client has attempted to draft the Declaration of Trust themselves (inevitably to “save money”) but a dispute has arisen given that it did not cover off all necessary points at the outset and now the client needs to spend money to resolve said dispute. Spending money on competent advice at the start can save a great deal of time, energy and more money further down the line;
Periodically review the Declaration of Trust to ensure it remains relevant and accurate. Circumstances can and do change, and the Declaration of Trust should be updated accordingly where necessary; and
Keep detailed records of financial contributions and any changes in ownership or responsibilities (i.e., who is responsible for paying the mortgage of the property, council tax and utility bills). This documentation can provide key evidence in support of your position, in the event of a dispute arising.

Conclusion & How We Can Help

Declaration of Trust disputes can be complex, time-consuming, emotionally charged and can damage relationships. Understanding the legal grounds for challenging a Declaration of Trust, the common issues that can arise, and the dispute resolution process is crucial. By taking preventative measures and seeking professional legal advice at the outset, co-owners of property can protect their interests and ensure they have a clear understanding of their rights and obligations.

If you require assistance to resolve a Declaration of Trust dispute, or the matter is heading towards litigation, we would be more than happy to advise and guide you, working with you to ensure that your case has the best possible chance of settlement (out of court if possible). As always, we will ensure that your matter is dealt with efficiently, diligently and effectively.

Helpful Links

Our firm is well-versed in assisting with all aspects of Declaration of Trust matters. Whether it’s navigating disputes, providing guidance on drafting and reviewing Declarations of Trust from their inception, or assisting with Deeds of Variation when changes to Declarations of Trust are required, we have the expertise and experience to support you every step of the way.

Please see below some helpful links to relevant content on our website which you can peruse at your leisure:

This article is intended for general information only, applies to the law at the time of publication, is not specific to the facts of your case and is not intended to be a replacement for legal advice. It is recommended that specific professional advice is sought before relying on any of the information given. © Jonathan Lea Limited.