Can beneficiary PR purchase house (mortgaged) from estate?

Trusts Discussion
1

I would appreciate some guidance with a question put to me by a PR.

Client’s mother died, testate. The estate comprises a house (subject to a mortgage) and nominal cash.

The Will provides for a few legacies totalling £40k and the residuary estate is divided equally between the deceased’s 2 children.

Both children were named as executors and probate has issued to 1 child with power reserved for the other.

The PR now wants to buy out her sibling’s share of the mortgaged property.

My question is how would this be possible? Or rather, is it even possible bearing in mind there is a mortgage and legacies to be paid?

Hoping somebody out there is able to give me some guidance.

2

The PR buys a share from the estate to cover legacies and testamentary expenses.this would need to be agreed with the other sibling.

Once administered the remainder of the equity is assented equally subject to the mortgage and the PR child then buys the other sibling’s share.

The other sibling will need to ensure that as part of the buy out he is released from the mortgage.

Normal cgt and sdlt considerations apply.

Simon Northcott

3

Is there any question of self-dealing in your proposed course of action? Surely the PR cannot buy out a share of the estate whether he wants to or not, and whether the other sibling consents or not.

4

This concerns me too.

5

It all sounds rather complex and, bearing in mind the PR just wants to do up the house and “flip” it, I find myself wondering why he doesn’t just sell the deceased’s home and use his inheritance to purchase a different property…

6

You can always overcome self-dealing restrictions if you have the consent of the (all adult) residuary beneficiaries. You can do what you like with full consent.

Andrew Goodman
Osborne Clarke LLP

7

All you can do is give him the two options for him to decide on…

Simon Northcott

8

Quite apart form any question of self-dealing, there is the issue summed up above in the phrase, “The other sibling will need to ensure that as part of the buy out he is released from the mortgage.” This is easier said than done. The mortgagee is under no duty to release anyone who is subject to the obligations of the mortgage. It will most likely have lent on the basis primarily of the borrower’s covenant to pay and secondarily on the security - See Nykredit v Ed Erdman Gp (No 2) [1997] 1 WLR 1627 HL. On the assumption that immediate redemption in full is not intended, it no longer has the benefit of the borrower’s covenant and is unlikely to release anyone who might be liable, at least unless and until it is satisfied that any new proprietor can satisfy its lending criteria. It is likely instead to demand immediate repayment and if not repaid take steps to exercise its common law right to possession and its statutory power of sale under LPA 1925 s 101.