Interesting question!
Unlike a situation where co-occupiers just go ahead and build an extension, this will not proceed without the parties turning their minds to the legal implications. We assume the surviving partner (SP) has at present no interest whatsoever in the property apart from the right to occupy under the Will. Therefore, whether he gains a beneficial interest by building an extension is entirely a matter for agreement between the parties. They may agree that he will get none, and if so, it should be documented and he should be separately advised. That should be the end of the matter.
If however he wishes to have his contribution recognised, that is something different. It’s always difficult to agree on the impact the extension might have on the value (as opposed to quantifying the cost of building it) but that does not seem to me to be the sticking point here. Rather, the question that exercises minds is likely to be the rights of the SP when his occupation comes to an end and either he, or his PRs, seek to recoup the value of his interest in the property. If the remaindermen are looking forward to a ‘free gift’ of a property, they may not welcome a demand for the value of the extension (as at that date) yet may not wish to sell (to allow the proceeds to be split pro rata). On the other hand, if they are thrilled at the idea of the extension, and are willing to pay, there may not be such a problem.
Before going further, can we know whether the remaindermen will be involved in the discussions? If not, should they not be?
Is there a possible solution if the right of occupation includes the right to change residences – on a change of residences, SP could recoup from his share of the proceeds? The trouble is, there is no guarantee any such right would be exercised (he may not want to leave his beloved extension). Will there possibly be other implications which could have an impact – e.g. if SP dies while in occupation, how will the trustees pay their share of any Inheritance Tax due on SP’s estate which is referable to the property? If it has to be sold, could the proceeds then be split between the parties to reimburse SP?
The more I think about this, the more complicated and uncertain it becomes. I think the remaindermen should definitely have a say in this, as the chickens only truly come home to roost when SP ceases to occupy, for whatever reason.
As to the differences which would apply if SP was remainderman as to 50%, I would say the same principles apply, although the arithmetic is different.
As always, above thoughts are humbly offered and others’ contributions may well be better!
Jill MacMahon
Thackray Williams LLP