Deed Of Trust And Assignment Of Rents Template for England and Wales
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What is a Deed Of Trust And Assignment Of Rents?
A Deed of Trust and Assignment of Rents combines a declaration of trust over property with a formal transfer of the right to receive rental income to a specified beneficiary or financier. In England and Wales, the trust declaration must satisfy the writing requirements of section 53 of the Law of Property Act 1925, while the assignment of rents must meet the conditions of section 136 and be notified to the tenant. The deed is used in property finance, estate planning, and investment structures.
Frequently Asked Questions
What is a Deed of Trust and Assignment of Rents?
A Deed of Trust and Assignment of Rents is a document that does two things: it declares a trust over property (identifying who holds the legal title and who is entitled to the beneficial interest), and it assigns the right to receive rental income from that property to a named beneficiary or third party. It is used in property investment and estate planning structures where legal and beneficial ownership are held by different persons.
Why would someone want to separate legal title from the right to receive rents?
Separating legal title from the rental income stream is used in commercial property finance (where a lender takes an assignment of rents as security), in family arrangements (where a property is held by one family member for another's benefit), and in tax planning (where a beneficial owner wants rental income directed to a lower-rate taxpayer within the constraints of tax law).
Does the assignment of rents need to be notified to the tenant?
Yes. For the assignment of rental income to operate as a legal assignment under s.136 LPA 1925, the tenant must be given written notice identifying the assignee and directing future rent payments to them. Until notice is given, the tenant is entitled to continue paying rent to the original landlord and will not be in breach by doing so.
Does the trust declaration need to be registered at the Land Registry?
An express trust of registered land should be protected by a Form A restriction on the title register at the Land Registry. This restriction prevents the registered proprietor from disposing of the property without overreaching the beneficial interests under the trust, protecting the rights of the beneficiaries against subsequent purchasers or mortgagees.
Who pays income tax on rents that have been assigned under this deed?
Under the Income Tax (Trading and Other Income) Act 2005, rental income is taxable on the person who is entitled to it beneficially. If the assignment transfers the beneficial right to the rental income, the assignee is the taxable person. Where a trust structure is used to divert income to a spouse or civil partner, HMRC's settlements legislation under ITTOIA 2005 may attribute the income back to the settlor.
Can lenders use a Deed of Trust and Assignment of Rents as security?
Yes. Lenders in commercial property finance regularly take an assignment of rental income as additional security alongside a legal charge. On default, the lender can activate the assignment of rents and direct tenants to pay directly to the lender or an appointed receiver. The assignment should be registered or noted against the title to ensure priority over subsequent encumbrances.
What happens to the assignment of rents if the property is sold?
On sale of the property, the seller can only transfer what they own. If the rental income has been assigned to a third party, the sale should address whether the assignment is released before completion or whether the buyer takes subject to it. The buyer's solicitor should carry out due diligence to identify any outstanding assignment of rents affecting the title.
Can a Deed of Trust and Assignment of Rents be varied or revoked?
Whether the deed can be revoked depends on whether it was constituted as a revocable or irrevocable trust. An irrevocable trust cannot be undone without the consent of all beneficiaries. A revocable trust or a contractual assignment of rents may be varied with the consent of the parties. Legal advice should be taken before attempting to vary a trust that benefits third parties or provides security to a lender.
About the Deed Of Trust And Assignment Of Rents
A Deed of Trust and Assignment of Rents combines two powerful security mechanisms into a single comprehensive document that protects lenders while enabling borrowers to finance income-producing properties. Unlike traditional mortgages, this instrument creates both a security interest in the property itself and assigns rental income streams directly to the lender, providing dual layers of protection for your investment.
When do you need this document?
You'll need this document when financing commercial properties, multi-unit residential buildings, or any real estate that generates rental income. It's particularly essential in states that permit non-judicial foreclosure, as it allows lenders to bypass lengthy court proceedings if default occurs. Property developers often use this instrument when securing construction loans for rental projects, while investors rely on it for portfolio acquisitions. The document becomes critical when traditional mortgage structures don't provide sufficient security for complex real estate transactions involving multiple income streams.
Key legal considerations
The assignment of rents clause requires careful drafting to ensure enforceability while protecting tenant rights under state landlord-tenant laws. You must clearly define trigger events that activate the rent assignment, such as payment default or property maintenance violations. The trustee selection is crucial, as this party holds legal title and must remain neutral while having authority to initiate foreclosure proceedings. Power of sale clauses must comply with state-specific notice requirements and borrower protection statutes. Insurance and property maintenance covenants need precise language to avoid disputes over responsibility and coverage requirements. Default cure periods must align with state foreclosure timelines to ensure the document's enforceability.
Legal requirements in United States
Each state maintains distinct recording requirements for deeds of trust, typically requiring notarization and filing with county recording offices where the property is located. Federal Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA) disclosures must accompany residential transactions, with specific timing and format requirements. State foreclosure laws dictate notice periods, publication requirements, and borrower redemption rights that must be incorporated into your document. Some states require specific language regarding borrower rights and foreclosure alternatives. Property description requirements vary by state, with some demanding metes and bounds descriptions while others accept assessor's parcel numbers. Assignment of rents provisions must comply with state laws governing landlord-tenant relationships and may require separate notice to existing tenants depending on jurisdiction.
GOVERNING LAW
Applicable law
This Deed Of Trust And Assignment Of Rents is drafted to comply with England and Wales law. Key legislation includes:
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