A Declaration of Trust, also known as a Deed of Trust, is an essential document in property ownership that defines the financial interests of individuals who own a property. It outlines each party’s contributions, ownership shares, and responsibilities, ensuring clarity and protection. However, circumstances may arise where a Declaration of Trust does not accurately represent the interests or intentions of one party. In such cases, it is possible to challenge a Declaration of Trust—though this process involves legal complexities.
What is a Declaration of Trust?
A Declaration of Trust is a legally binding document used to record the financial arrangements of joint property owners. Commonly used among cohabiting couples, family members, or property investors, it specifies:
- Ownership Shares: The exact proportion of the property each party owns.
- Financial Contributions: Contributions towards the deposit, mortgage payments, and other costs.
- Entitlement on Sale: How proceeds from the sale of the property will be divided.
- Responsibilities: Who pays for ongoing costs like maintenance and mortgage repayments.
For example, if one party contributed £20,000 towards the deposit and the other party contributed £10,000, the Declaration of Trust would outline this difference and confirm the agreed ownership percentages.
Why is a Declaration of Trust Important?
- Protection of Investments: Ensures contributions are recognised and protects financial interests.
- Dispute Prevention: Reduces ambiguity in case of disagreements over ownership or contributions.
- Legal Clarity: Provides evidence of each party’s intentions, which can be essential in disputes or court cases.
Despite its importance, a Declaration of Trust may become a source of contention. If a party believes they have been misled, coerced, or otherwise treated unfairly, they can legally challenge it.
Can a Declaration of Trust Be Challenged?
Yes, a Declaration of Trust can be challenged in the UK under specific circumstances. Common grounds for challenge include:
- Misrepresentation (fraudulent, negligent, or innocent).
- Undue Influence (actual or presumed).
- Lack of Capacity (mental incapacity).
- Mistake (mutual or unilateral errors).
- Illegality or Violation of Public Policy (e.g., illegal terms).
Challenging a Declaration of Trust requires legal expertise, evidence, and often court involvement. It is not a process to undertake lightly, as it can be time-consuming, costly, and emotionally taxing.
Grounds for Challenging a Declaration of Trust
Misrepresentation
Misrepresentation occurs when false or misleading information influences a party to sign the Declaration of Trust. There are three types of misrepresentation under UK law:
- Fraudulent Misrepresentation:
This occurs when one party intentionally deceives another to gain an unfair advantage.- Example: If one party claims they contributed a higher amount than they did, causing the other to agree to an unfair ownership share.
- Negligent Misrepresentation:
Caused by carelessness or failure to verify facts, leading to inaccurate information in the agreement.- Example: Incorrect financial contributions recorded due to oversight or failure to verify bank records.
- Innocent Misrepresentation:
A false statement made without fraud or negligence. Though unintentional, it can still render the agreement invalid.
Remedies for Misrepresentation
- Fraudulent/Negligent Misrepresentation: The claimant can seek rescission (cancelling the Declaration of Trust) and claim damages.
- Innocent Misrepresentation: Courts may award damages or rescission, but not both.
Undue Influence
Undue influence refers to one party improperly exerting pressure on another to sign the trust deed. UK courts recognise two types of undue influence:
- Actual Undue Influence:
Proven when one party exerts clear pressure, preventing the other from exercising free will.- Example: A family member coercing someone into signing a trust deed under emotional or financial pressure.
- Presumed Undue Influence:
Occurs where a pre-existing relationship of trust and confidence exists, such as between family members or couples.- Example: A child placing undue influence on an elderly parent to transfer property shares.
Evidence: The claimant must prove either actual or presumed undue influence. In presumed cases, the burden shifts to the defendant to prove the transaction was fair and entered willingly.
Lack of Capacity
For a Declaration of Trust to be legally binding, all parties must have the mental capacity to understand the document’s implications. Lack of capacity could arise if:
- A party was suffering from dementia or a mental illness.
- They were unable to comprehend the legal consequences at the time of signing.
If proven, the Declaration of Trust can be challenged and set aside.
Mistake
Mistakes—whether mutual (all parties) or unilateral (one party)—can provide grounds for challenging a Declaration of Trust.
- Mutual Mistake: All parties misunderstood or were mistaken about the terms. This is easier to rectify as there is no dispute.
- Unilateral Mistake: One party was mistaken, and the other knowingly took advantage of the error.
Example: A party unintentionally agrees to an ownership share that does not reflect their financial contributions.
Illegality or Violation of Public Policy
A Declaration of Trust can be challenged if it involves illegal actions or violates public policy. For instance:
- The agreement facilitates fraudulent activities.
- It violates ethical standards recognised by UK courts.
In such cases, the courts can declare the trust deed void or unenforceable.
How to Challenge a Declaration of Trust
Challenging a Declaration of Trust involves several steps, which typically require legal expertise:
- Consult a Solicitor: Seek advice from a solicitor experienced in property disputes and trust law. They will evaluate your case and identify valid grounds for challenging the trust.
- Establish Grounds for Challenge: Determine the specific grounds (e.g., misrepresentation, undue influence, lack of capacity). This is critical to building a strong case.
- Gather Evidence: Collect supporting documents, witness statements, and financial records to substantiate your claim. Examples include:
- Emails or communications showing coercion or misrepresentation.
- Medical records indicating lack of capacity.
- Financial statements proving contributions.
- Notify All Parties: Inform all parties involved in the Declaration of Trust about your intention to challenge it. They will have an opportunity to respond.
- Explore Mediation or Settlement: Before proceeding to court, parties may attempt to resolve the dispute through mediation or negotiation. This can save time and legal costs.
- Begin Legal Proceedings: If mediation fails, your solicitor will initiate court proceedings by filing the necessary documents and presenting your case.
- Court Hearing and Judgement: The court will assess the evidence and arguments presented by both sides. Possible outcomes include:
- Declaring the trust deed void.
- Modifying its terms.
- Upholding the validity of the trust.
What Happens if the Challenge Succeeds?
If the challenge is successful, the court may:
- Invalidate the Declaration of Trust: Rendering it null and void.
- Modify the Terms: Adjusting the ownership shares or financial responsibilities.
- Order Compensation: Awarding damages to the aggrieved party, particularly in cases of fraudulent or negligent misrepresentation.
Alternatively, parties may agree to amend the trust deed using a Deed of Variation, which records mutually agreed changes without drafting a new document.
Key Considerations Before Challenging a Declaration of Trust
- Costs: Legal fees can range from £1,500 to £5,000 or more, depending on case complexity.
- Timeframe: Delays in bringing a challenge may weaken your case due to laches (unreasonable delay).
- Evidence: Strong, documented evidence is critical for proving claims of misrepresentation, undue influence, or mistake.
- Alternatives: Mediation can offer a faster, less contentious resolution.
Conclusion: Seek Professional Legal Advice
Challenging a Declaration of Trust is a legally complex process that requires expert guidance. Whether you believe you were misled, pressured, or treated unfairly, acting quickly and consulting a solicitor is essential. A solicitor can evaluate your case, gather evidence, and help you navigate negotiations or court proceedings.
While a Declaration of Trust is a binding agreement, UK law provides clear grounds for challenging it in cases of misrepresentation, undue influence, or mistake. By understanding your legal rights and seeking professional advice, you can ensure a fair resolution and protect your financial interests.