What is a Deed of Variation?

Legal documents are, you guessed it, legally binding. But what if something goes wrong, and you need to make much-needed changes to a contract? Let's take a look at the primary way people modify legal documents - a Deed of Variation.

What is a Deed of Variation?

A Deed of Variation is an amendment to an original legal text or document that allows you to make small but important changes.

In property, a Deed of Variation allows you to amend the terms and conditions of an existing lease agreement. It can be initiated by the landlord and tenant, usually with mutual agreement, to modify certain areas of the lease. The same deed can be used to amend complex contracts in order to change terms and stipulations.

A Deed of Variation can also be used to alter beneficiaries in last wills and testaments, as well as how assets are distributed.

When do I need one?

A Deed of Variation can be super useful. Everyone makes mistakes and things can change naturally over time. As such, legal documents need to be amended to reflect the new circumstances. But how does a Deed of Variation actually work?

Varying a lease

In property, a Deed of Variation can be used to amend existing documents, such as lease agreements.

For example: If a tenant has been renting from a landlord under a lease agreement, but their job requires a sudden relocation, a Deed of Variation could outline a potential early termination of the lease.

Who can vary a lease?

In the context of property, both leaseholders and freeholders have the power to vary a lease. More often than not, it's the leaseholder who begins the process because they want to sell the property and their conveyancing solicitor has spotted a lease clause that needs amending.

As with all Deeds of Variation, both parties need to be in agreement for the deed to progress to conclusion. This prevents one party from forcing unfavourable terms on another.

How long does varying a lease take?

It depends! Usually in situations involving a lease agreement, a Deed of Variation can take a matter of weeks, but in rare cases, it can take years for the parties involved to agree on the exact wording of the Variation Deed and produce the correct documents.

How much does it cost to vary a lease?

As with the process of varying a lease, how quickly the parties can agree the wording and enter the documents can affect the cost of a Deed of Variation. The number of properties involved will also have an impact on a final figure.

Most cases tend to cost a few hundred pounds per leaseholder but the complexity of the case can increase this exponentially.

Varying a contract

A Deed of Variation can be used to vary contracts that need important changes. You don't always need a deed to vary a contract - the distinction lies in whether the contract was executed as a simple contract or a deed.

Deeds (typically requiring signatures and witnesses) are for significant, formal transactions, whereas simple contracts don't require witnesses.

Example: After an exchange of contracts in a property transaction, both parties mutually decide to make some changes to the contract - like modifying the purchase price or extending the completion date. A Deed of Variation can be used to amend the document to meet both parties' expectations.

Who can vary a contract?

Your ability to vary a contract depends on the terms and conditions specified in the original agreement. Usually, the parties involved in the contract can vary it by mutual agreement, as long as they adhere to the terms set forth in the original contract itself.

How long does contract variation take?

Informal changes to simple contracts can be relatively quick if both parties are in agreement and the changes are simple. Drafting a written agreement or even a simple exchange of emails can be enough.

Using a Deed of Variation however involves a more formal and structured process. There may be additional steps, like having all necessary parties sign the deed with witnesses.

How much does it cost to vary a contract?

Changes to a simple contract might not cost anything at all. Where a simple deed of variation is needed however, small changes will carry charges of a few hundred pounds.

If the changes are more complex, or require extensive negotiation, legal fees can be much higher, ranging from several thousand to tens of thousands of pounds.

Varying a will

A will and testament is a legal document that expresses how someone wishes their estate and assets to be distributed when they die. A Deed of Variation (in this case, often referred to as a Deed of Family Arrangement) can be used to amend or change parts of the will.

For example: If a loved one dies, but forgot to name someone as a beneficiary in their will, a Deed of Variation can be used to declare their intent and amend the will.

The example above shows why tweaking a will is crucial, but there's more to it—especially in the money department. A Deed of Variation isn't just for changing a will, it's good for avoiding the unexpected tax implications of Inheritance Tax and Capital Gains Tax.

Inheritance Tax and Capital Gains

By using a Deed of Variation, you can receive your inheritance in a more tax-efficient way. The beneficiaries involved can usually vary the contract by mutual agreement, as long as they adhere to the terms set forth in the original, valid will.

Capital Gains (CGT)

As a beneficiary, you can move your inheritance to other beneficiaries (or create new beneficiaries) by specifying in the Deed of Variation how certain parts of the deceased's estate should be distributed. You can redirect specific assets with potential capital gains and redirect them to beneficiaries with lower CGT liability or personal tax reliefs.

If you vary the will within two years of the person's death, it's treated as if the variation was made by the deceased, and there's no CGT liability for the original beneficiary.

Inheritance Tax (IHT)

You can reduce Inheritance Tax by transferring some of your entitlement from to another beneficiary. Any adult who's entitled to benefit from the deceased person's estate is free to give their inheritance to whoever they choose. By using a variation deed, this gift can be treated as if it were made by the deceased person rather than the intended recipient's estate - meaning they won't be charged Inheritance Tax!

You can also use a Deed of Variation to place the gift in a trust to prevent the asset from being subject to Inheritance Tax in the future. However, they may still be liable for Capital Gains and Income Tax.

Who can vary a will?

• Beneficiaries: A beneficiary named in the original will can vary their share of the estate using a Deed of Variation and redirect their share to someone else.
• All beneficiaries: If all the beneficiaries affected by the variation agree, they can use a Deed of Variation to alter the terms of the will, redistributing assets or specifying new beneficiaries.
• Executor and trustees: Executors and trustees may need to be involved in the process if they're required to make the changes specified in the Deed of Variation.

How long does it take?

If the changes aren't complicated, the deed shouldn't take longer than a few weeks to complete. However, all beneficiaries must be in agreement for the deed to go ahead. Problems with achieving this consensus can lead to longer delays.

How much does it cost to vary a will?

On average, it costs £1000 to £1500 to vary a will with a variation deed - but this can be much higher depending on the complexity and value of the deceased person's estate. To avoid inflicting these costs on any loved ones, it's a good idea to review your will after any significant change in financial or family circumstances.

Summary: A handy deed indeed

A Deed of Variation can be pretty handy if you're about to jump into a written agreement. Just don't just count on being able to make one whenever. Approach things that require a signature with preparation and always seek expert legal advice from a solid solicitor!