Lease extension on probate property

woodpecker

Hi, my partner's parents have passed away and when dealing with their estate, he found that the lease on their property is less than 45 years. In order to sell he will have to extend the lease. He will share the proceeds with 3 siblings, none of whom have the funds to extend the lease (it is likely to cost six figures). We can raise the funds through a combination of savings and a loan, but should he get a legal agreement with his siblings that he will get a greater share of the proceeds to reflect the financial risk he is taking? I'm thinking specifically about the loan interest and losses he will bear from withdrawing his savings. I don't want to think negatively but I do not trust his family to play fair!

Brie

Well who's the executor?  That's the person that should be dealing with this.  If it's your partner alone then he can (I believe) do what is best for the estate, and the estate will need to bear the costs prior to doing any payouts.  

woodpecker

Hi my partner is the executor; one of his siblings was also named as executor but as she lives abroad, she signed a document which lets him do all the work (!) For practical reasons it was just easier that way. My concern is that when the estate is distributed, everyone will expect to get an equal cut, when no-one else has put any money in. Clearly my partner will be entitled to take out what he's contributed, but I wasn't sure if legally he can also take the interest.

woodpecker

My other concern might seem irrational but it may help if I explain that my partner has poor health - what if something happens to him before the estate is settled? I'm concerned that the savings he puts in to extend the lease may never be recovered. He and his siblings are in their 50s/60s and with Covid and other existing health problems it's not inconceivable that this could happen. We've paid our mortgage and I earn enough to manage alone, so that's not the issue. I want to protect his finances to pass on to our children. I'm just curious if anyone thinks he would need to sign a legal agreement with the other beneficiaries to ensure this. 

SeniorSam

Better to explain matters to the other beneficiaries so that thy understand the problem of the short leasehold and how it can be overcome, possibly making the property for sale that more valuable. Clarify that the costs of raising the capital if  you do it would be less than if the Executor has to raise a mortgage on the property and agree an amount that would offset your loss and the costs. That would be fair to all. The Executor is in control of the purse strings, so she will be able to adjust the payment to all beneficiaries. A signed agreement is best before expenditure.

Keep_pedalling

If you partner puts in all the money into extending the lease, then he will have made a loan to the estate so will be entitled to all of it back plus any interest on the loan before the estate is distributed. The main problem is going to be the delay this will put his siblings getting their inheritance, so he needs to be straight with about this. 

You partner needs to do his homework about the value of doing this bearing in mind that any increase in value needs to be split 4 ways and may also be subject to CGT, so it could be a lot of work for a small gain.

woodpecker

Thanks Keep_pedalling, he has already tried to sell the house with the short lease and can only attract developers who agree a price and then gazunder at the last minute, hoping to force a sale. His siblings are aware of the situation. The difference in sale price could easily be £200,000 so we think it will be worth the extra work.

Marcon

woodpecker said:

Hi, my partner's parents have passed away and when dealing with their estate, he found that the lease on their property is less than 45 years. In order to sell he will have to extend the lease. He will share the proceeds with 3 siblings, none of whom have the funds to extend the lease (it is likely to cost six figures). We can raise the funds through a combination of savings and a loan, but should he get a legal agreement with his siblings that he will get a greater share of the proceeds to reflect the financial risk he is taking? I'm thinking specifically about the loan interest and losses he will bear from withdrawing his savings. I don't want to think negatively but I do not trust his family to play fair!

Is he actually worried or just you? If the former, you may find yourself having an argument with him! Otherwise yes - get the thing formalised and ensure all other beneficiaries are aware of what is going on/the impact it will have on their share.

getmore4less

One way to mange the risk reward is to agree to buy off the estate at current value.
Taking self dealing rules into account.

peb

If the property is to be sold then you simply put in hand arrangements for the surrender and regrant of the lease (how a lease extension is usually dealt with) and simultaneously complete this on completion of the sale paying the costs from the sale proceeds - perfectly standard arrangement. Be aware that there is a formal process which takes some time although some freeholders/head lessors don't require the process to be followed

If not then whosoever puts the money in the pot puts a charge (mortgage) on the property.  Again pretty standard and a decent conveyancer can do this.  You'll need one anyway for the surrender and regrant.