A Trust Deed or Joint Ownership Agreement (JOA) to Secure Your Home Ownership

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Introduction – Co-ownership and Trust

There are perks to co-owning a property in the modern day, where you are able to share financial and other responsibilities with someone you can depend on. Moreover, there is a certain security in having a mutual agreement that reflects trust and conveys sufficient recognition, both in interpersonal interactions and business transactions.

In real estate planning, when it comes to distinguishing co-ownership or co-proprietorship, real estate professionals make use of what is called a “Trust Deed” to clearly state any terms held by or required of joint owners of a property. It is based on the “Co-Proprietor’s Agreement” and runs differently from the typical laws used in the Malaysian property scene. 

However, there are certain important considerations to make before deciding on the best way to define shared ownership and proceed with a property purchase, or to acquire property for investment purposes. Here, we list the basics concerning a Trust Deed and the best way to make use of one, when you need it. 

Trust Deed

What is a Trust Deed? 

In simple terms, a Trust Deed – also known as a Deed of Trust – is a legal binding document that formalises and acknowledges the ownership agreement between two or more parties, in relation to a single, or landed, property. It is especially used in situations involving shared or partial ownership of a property and can be particularly helpful when it comes to managing assets or co-investing in said property.

A Trust Deed will contain vital information including the ownership shares and rights, and financial obligations in a shared property ownership. This can refer to the percentage of property owned by each party in relation to a shared piece of property, obligations to pay home loan repayments or quit rent on the property, as well as any other financial considerations. 

As a Trust Deed contains all this information in a clear and concise manner, the document can come in very handy when terms for ownership come into debate.

It is highly advisable for the parties involved in a co-ownership to hire an experienced lawyer or solicitor to help draft this agreement, to cover the basics ensuring that all the necessary elements are incorporated and the final document is permissible in court. 

Like all legal documentation, a Trust Deed will require an official stamp to finalise its content and denote legitimacy. This must be done within 30 days of the signing of the Sale and Purchase Agreement (SPA). All parties involved in a Trust Deed are considered “chargeable persons” under the Income Tax Act and will be subject to payment of tax and appropriate penalties.

NOTE: Stratified properties such as apartment complexes and condominiums – with many individual owners – refer to the “Strata Management Act (SMA),” or what is known as a “Deed of Mutual Covenant (DMC),” to fulfil the purpose of a Trust Deed. 

Trust Deed

What does a Trust Deed contain?

Referencing a Trust Deed will tell you detailed information about a shared ownership, such as contact details of all invested parties, the value and share of ownership at time of purchase, co-investor responsibilities for payment of loans, maintenance, quit rent, and other outgoings, and terms for decisions about property in the event of a potential rental or sale.

The Trust Deed might also include inheritance terms if either co-proprietor dies – a faint echo of the British Common Law principle, whereby full ownership of a shared property is granted to the surviving party if the other party passes on – these considerations and calculations relate to the share of ownership of the property and can prevent inheritance disagreements. 

It is advisable to have such a document on hand, as the terms of the ownership of the property is made clear and ultimately avoids grounds for contention.

Why exactly do you need a Trust Deed?

As we know, circumstances do not always remain ideal: when a partnership turns sour, for example, having a true-and-thorough Trust Deed at the time of signing a Sale and Purchase Agreement will not only save the owners from having their disagreement escalating to expensive and lengthy courtroom battles, but also confers welcome legal protection, where applicable. 

While a Trust Deed will thankfully not affect your mortgage, instances where its significance might be of use include (to): 

  • Acknowledge the main parties involved in the shared purchase/investment of the property.
  • Dissolve tense disagreements over the ownership of a shared property, as a signed and stamped Trust Deed marks out clearly the rights and responsibilities of each party involved. 
  • Establish rights in an unevenly-distributed ownership i.e., when the rights to the property is not split equally during purchase. It prevents one party from losing out on future dealings concerning the ownership agreement. 
  • Acknowledge third-party investments into the property, or property ownership changes, which would ultimately shift the share of ownership. 
  • If the property is purchased as an investment, a Trust Deed can be used to influence the tax efficiency of the property based on the tax threshold of each owner. 

Some countries are known to use the Deed of Trust as a form of protection for the inheritance process, to avoid messy and drawn-out legal disputes. Malaysia, however, passes down ownership to its citizens based on the national legal system’s prescribed inheritance rules and laws – all owners are entitled to shares in the ownership of the related property. 

Joint Ownership Agreement (JOA)

What is a Joint Ownership Agreement?

Another method of documenting co-ownership is by way of a “Joint Ownership Agreement (JOA),” signed by two or more potential owners at the time of purchase of the property. The terms contained within a Joint Ownership Agreement are similar to those in a Trust Deed and prevents the owners involved from contesting their rights to a shared property in future property undertakings.

According to law firm Marcus Hwang & Co partner Normaliza Sulaiman, a Joint Ownership Agreement mainly serves to resolve any disputes, differences, or disagreements between co-owners. 

“All agreements are legally valid and sufficient if they are executed by the relevant parties and attested witnesses, and stamped to have the agreement admissible for court proceedings,” Normaliza said.

In addition, as the Joint Ownership Agreement does not fall under the scale or fixed fee under the Solicitors Remuneration Order (SRO) 2015, solicitors are permitted to charge reasonable fees depending on the contents, complexity, and time taken in the preparation of the agreement. 

Why is a Joint Ownership Agreement necessary?

A Joint Ownership Agreement is just another type of declaration of trust between the parties involved in a property deal. Besides providing a formal record of the joint ownership and responsibilities in maintaining the property, it can also mitigate unpleasant discord between the joint owners should they come to pass in the future.

A Joint Ownership Agreement can be drafted in the same manner as a Trust Deed, by a registered and experienced legal representative and stamped to confirm legitimacy. Be sure to include all the relevant information as you never know when it might be significant – it is always wise to be prepared for any eventuality.

Joint Ownership Agreement(s) are mostly preferred by spouses as a way to manage their long term assets, with added tax- and non-tax consequences, but perhaps the biggest advantage of a Joint Ownership Agreement lies in its ability to avoid probate and will contests. 

Trust Deed

Termination of a Trust Deed 

As a recap, a Trust Deed is a written declaration that secures the rights of the owners of a shared property, and may be referred to at any time should misunderstandings arise. A Trust Deed made out for co-ownership typically complies with land laws as outlined in the Malaysian legal system. 

If unfortunate circumstances require the need for termination of co-ownership, the parties involved may apply to the court for termination in accordance with regulations stipulated by the National Land Code (NLC) 1965. The court will also decide the manner in which the property will be sold. 

Summary – So, what will it be?

Purchasing a property involves a great deal of time, effort, and money for most people who decide to act individually, and it’s no less different for those who decide to purchase one together – acknowledging their respective rights by way of a mutual agreement offers additional security after the fact.

Despite the distribution of rights and responsibilities, a co-ownership will be subject to trouble if either party(s) involved decides to break the covenant of trust that is the foundation of the agreement.

So, when you opt to finalise and formalise co-ownership rights via a Trust Deed – or a Joint Ownership Agreement – it is best to prepare one ahead of time, according to the financial capabilities and limitations, and risk profile of each party involved, in the flexible manner suggested above.

You can rest easy knowing that a piece of paper commits your interests to heart.

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