Trust is a valuable commodity, but luckily, the type that we’re referring to here comes with paperwork to keep it safe.
The Deed of Trust is a rather helpful legal document which can be used in Malaysia’s property market for situations that involve shared or partial ownership.
This can be particularly helpful in terms of co-investing on property, whereby a property is purchased by more than one party, and ownership is divided between them.
So just what is a Deed of Trust, when might it be used, and what else do you need to know about it?
What Is The Trust Deed All About Then?
The Deed of Trust is a legal document which records and formalises the ownership agreement between two (or more) parties in a property.
This document will set out the ownership shares, rights, and financial obligations relating to this shared property ownership.
That can be things like the total percentage of property owned, obligation to pay home loan repayments or quit rent, and any other financial considerations relating to a shared piece of property.
The ‘trust’ element comes from the structure of the deal. For example: Person A signs the Sale and Purchase Agreement (SPA) for the property, and then the Deed of Trust is created to acknowledge the shared ownership of both Person A and Person B.
In other words, Person A has the property in his/her ‘trust’, and the Deed of Trust legally recognises the shared investment/involvement of Person B.
When Might A Trust Deed Be Used?
You’re probably wondering why anyone would use one for co-ownership? Many people take out joint property purchases, and rely on the existing legal protection or terms that apply to this type of ownership.
That’s fine if things are smooth and uncomplicated, but can become extremely challenging if the situation suddenly takes a turn for the worse, or relationships break down.
In some countries, a Deed of Trust is used as a form of protection for the inheritance process, as part of estate planning.
British Common Law follows a principle known as the ‘Right of Survivorship’, in the case of joint property ownership. Maybe that sounds a bit Hunger Games-ish?
What it essentially means is that if an owner on a joint ownership agreement dies, the property automatically transfers into full ownership of the surviving party.
PropertyGuru Tip
Love transfers is a legal method that offers a simple solution to transfer ownership of property between family members and loved ones.
Malaysia doesn’t actually follow this convention, but instead, passes down ownership as prescribed under existing inheritance rules and laws. But, that doesn’t mean there’s no need for some sort of formalised ownership agreement!
A Deed of Trust can clearly lay out the inheritance intentions and wishes of a co-owner in the event of their death.
This can then form part of any legal proceedings to establish the rightful inheritor of their share of the property. Obviously, this declaration must comply with the wider rules and regulations of the Malaysian legal system.
There are a few other key scenarios where a Deed of Trust might be needed/called upon in Malaysia’s property market:
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Scenario One
Firstly, a properly crafted and stamped Deed of Trust makes a legally recognised declaration of shared ownership that marks out clearly the rights and responsibilities of each party.
VERY important indeed if a disagreement causes one party or the other to fight over the ownership, or wishes to secretly sell off their share of the property.
Without a formal written agreement, these kinds of arguments can get reallyyy messy, really fast.
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Scenario Two
Secondly, a Deed of Trust can be extremely valuable in cases where ownership is not shared equally (read: split 50/50).
If, for example, you own 35% of the property and your co-investor owns 65%, you’ll want it clearly written down what are the rights and obligations expected of that 35% ownership.
On the other hand, we’re quite sure that the person with the 65% investment will want it officially recorded that they own the majority share.
If there’s no Deed of Trust in scenarios of uneven ownership, then one party could potentially lose out big-time from the agreement, with the assumption that the property’s value/assets should be split 50/50 at the time of sale.
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Scenario Three
A third use of the Deed of Trust could come in a scenario where perhaps a friend or relative has helped you to partially fund a property purchase.
Person A and B may have only been able to scrape together 80% of the purchase price, so Person C (a kindly relative with lots of cash to spare) offers up the additional 20%. A Deed of Trust can legally acknowledge and formalise this agreement.
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Scenario Four
Finally, a Deed of Trust could come in useful if the property ownership changes at a later point in time.
Perhaps you build an extension at the front of your landed property, and one party pays the money, or a relative lends you the funds. A Deed of Trust can then be introduced to reflect the shifting share of ownership.
What’s Important To Include In A Trust Deed?
Obviously this document is only as valuable as the information recorded on it. There’s no single, definitive format for a sample, but some important elements to record are:
- Name and address of all invested parties.
- Value and share of ownership at time of purchase.
- Co-investor responsibilities for payment of loans, maintenance, quit rent, and other outgoings.
- Terms for decisions about property, including sales price, partitioning, etc.
- Inheritance considerations if either co-proprietor dies.
- Calculations relating to share of profits for rental or sale of property.
The Deed of Trust is a fairly flexible document, and there’s really no definite scenario where it MUST be used.
It’s up to the parties involved in a property transaction to take the initiative and have this document drafted. Think of it as smart planning for a smoother tomorrow!
You can, of course, choose to create one by yourself if you’re trying to cut costs, but like most complex legal documentation, it’s not recommended to do this.
If you create your own Deed of Trust, there’s a chance you might overlook important elements of the agreement, or create an agreement that’s not legally binding.
We recommend you hire an experienced lawyer to help draft your agreement. This will mean all parties can be confident that the Deed of Trust is complete. And as always with legal documents, don’t forget to get it stamped!
An officially stamped document is permissible in court if the worst does happen, and your disagreement turns into a full-blown legal dispute. You’ll be happy you remember that one little stamp after all!
One final point to note is that the Deed of Trust is one option to record and formalise co-ownership, but a joint-ownership agreement (JOA) is another style of agreement that’s increasingly referenced in Malaysia.
This fulfills the same function as a Deed of Trust, and has similar results in terms of officially recognising the terms and conditions of a jointly owned property.
If a relationship does unfortunately break down, there’s no need for you to feel trapped in a co-ownership property.
Section 145 of the National Land Code 1965 provides the means for a co-owner to apply to the court for termination of co-proprietorship, and to sell off the property in which manner that the court decides. That’s when a Deed of Trust could really show its value.
Do you live in a stratified property in Malaysia? Then you might be interested to find out more about ownership responsibilities, and the Deed of Mutual Covenant.
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