Common property probate questions
When a person dies, their personal representatives (executors or administrators) must handle the estate, including settling debts and distributing the remaining value of the estate (the residue). It is not uncommon for personal representatives of the deceased to encounter certain issues and costs during the probate process, especially when handling the sale of a property.
Executors may find that the property needs some repairs and renovations, or that a lease has run short, or perhaps probate is simply taking longer to be granted than was expected. All these things can make the probate process complex and stressful and here we explain some of the important issues relating to property and probate.
Property with a short lease
A short lease (under 80 years is generally considered a ‘short lease’) can reduce the market value of a property and may make it hard for potential buyers to get a mortgage.
A short lease can be extended as long as the deceased was a qualifying tenant at the time of their death. To be a qualifying tenant, the lease must have been for more than 21 years when the deceased made the purchase and they must have been registered as the owner of the property for two years prior to death.
As executor or administrator of the estate of a qualifying tenant, you have the right to apply for a lease extension, but this process must be commenced within two years of the grant of probate or letters of administration. To start the statutory lease extension process you must serve a Section 42 Notice on the landlord/freeholder. The freeholder must then respond in a set time frame and either agree to the extension (although they may wish to stipulate different terms) or disagree, giving the reasons (site redevelopment or ineligibility, for example).
The lease extension process is complex and it is essential to seek advice from an experienced solicitor when making an application.
It may be possible to informally agree an extension with a landlord through negotiation if the deceased is not a qualifying tenant, but the landlord is not obligated to extend the lease on the property and any informal negotiation is not governed by legislation or limit to costs. Legal advice is critical if you are going to negotiate informally over the extension of a lease.
Paying for a lease extension from the estate
Properties with only very short leases are likely to suffer serious devaluation and can be difficult to sell, but obtaining a lease extension can be costly and, depending on the length of the lease in place, may run into tens of thousands of pounds.
Estate executors have a responsibility to beneficiaries to ensure the best possible price is achieved for the property, so, as long as the costs of extending the lease are proportionate to the increase in value of the property, a lease extension should be sought.
The lease extension application and associated costs (solicitors’ and valuers’ fees) are likely to be reimbursable from the estate as an estate management expense. If there are not enough liquid funds available in the estate prior to the sale of the property, the executor may need to seek other forms of funding, such as a loan. It is essential, however, to seek professional advice to ensure that the cost benefit will be sufficient.
It should be noted that at the time of writing the government has proposed broad reforms to the leasehold property market and associated legislation which may affect leaseholder’s rights in the future.
Other property-related costs
As the personal representative of an estate, you can claim reasonable expenses which will be paid back from the estate before the residue is distributed to beneficiaries. Although you cannot claim for your time spent handling the estate, you should not be left out of pocket and money spent on reasonable costs associated with estate administration can be reimbursed from estate funds.
Such property-related costs include:
- Reasonable house repairs and maintenance to help make the property saleable/habitable
- House clearance costs
- House cleaning costs
- Garden maintenance costs
- House insurance costs (vacant property cover)
- Cost relating to marketing and selling the property
Property with tenants
If the estate comprises property being rented out to tenants, there are various options available, but it should be remembered that landlords have legal obligations to their tenants and, any potential action will depend on the type of lease held by the tenants.
Options may include:
- keep renting out the property (in which case the income may be liable for income tax)
- terminate the tenancy so the property can be sold
- sell the property with ‘tenants in situ’ (tenants remaining in the property)
Any decisions regarding what happens to the property and the tenants will need to be agreed by all personal representatives of the estate and must not infringe on the tenants’ rights.
Waiting for probate
Sometimes the wait for grant of probate or letters of administration may stretch into several months and this can mean delays in getting the estate settled efficiently. While executors can start preparing a property for sale, marketing it and even accepting an offer, they must wait for the official grant before going through with a sale.
Only once the grant of probate or letters of administration are confirmed may personal representatives liquidate assets or use estate funds to pay for any expenses.
Property and IHT
In all cases where an estate is valued over a certain threshold, including any nil-rate band allowance, it will be liable for Inheritance Tax (IHT). Meeting the IHT liability is a necessary part of the personal representatives’ role and must be handled in accordance with current tax law.
IHT must be paid within six months of the date of the deceased’s passing and this can be a concern for executors, especially if the main value of the estate is tied up in a property which will need to be sold in order to meet IHT. In this case, IHT can be paid in staged payments (instalments), but be mindful that interest will accrue on the outstanding balance. The balance (including interest) must be paid in full once the property is sold.
Alternatively, some banks and building societies may release money directly to HMRC to pay an IHT bill.
Experienced probate solicitors and legal experts
Wellers team of probate solicitors can draw on the considerable expertise of our residential conveyancing and tax law teams to provide a full range of expert legal advice so you can negotiate the probate process successfully and with the minimum of stress.
We have specialist, highly qualified probate solicitors in each of our regional offices; contact the team today via email at firstname.lastname@example.org or call the Surrey office on 01372 750100, Sevenoaks on 01732 457575, Bromley on 020 8464 4242 and London on 020 7481 2422.