Case Study: Conditional Contract

Completion Conditional on Grant of Probate

You found a suitable property on Rightmove - you've been to view the property - you've calculated the acquisition costs - you've arranged the finance - you've made an offer that was accepted - you go through conveyancing and about to exchange contract when the seller dies! What do you do then?

This is the scenario that my client faced when he asked me to take over dealing with the purchase conveyancing. The decision to ask me to act on the conveyancing was no reflection on his usual conveyancing solicitor. His solicitor - who only does vanilla conveyancing - advised him to wait until grant of probate was issued before exchanging contract.

My client was concerned that the executor may sell to another buyer after my client had invested a lot of time, money and effort into the transaction thus far. My client’s offer was at a very healthy discount to the open market value of the property and my client intended to trade the property on (at the open market value) for a profit so he was keen to secure the property as soon as possible and not wait until the grant of probate was issued - which could be up to a year, given the backlogs with the Courts. This complex problem required a creative solution, hence why my client asked me to take over conduct of the purchase conveyancing. (If you’re new to this magazine, you’ll discover that I have a reputation for creative property strategies and solutions to complex real estate problems. Search #CreativePropertyLawyer)

In this scenario, the entire conveyancing process was pretty much completed. All the searches and replies to pre-contract enquiries had been received. Mortgage all sorted. My client’s usual conveyancer had reported to my client and obtained a signed contract and the deposit. Likewise, the seller’s solicitor had reported to their client, obtained a signed contract and obtained the seller’s verbal authority to proceed with exchange of contract. Authority was given by the seller to the seller’s conveyancer by phone on Friday. The two conveyancers then got tied up with completions so did not get the chance to formally exchange contract on that Friday. On Monday, when the seller’s conveyancer called the seller to re-confirm the authority (good practice for obvious reasons), the seller’s wife informed the seller’s solicitor that the seller had died over the weekend.

It is arguable the seller’s authority given on the Friday was sufficient for his conveyancer to continue with exchange of contract on Monday. However, because of this risk and the risk that the client may have changed their mind over the weekend (as happened to me on several occasions), it is good practice for a conveyancer to call their client on the day they are likely to exchange contract to check the authority continues.

If the seller’s solicitor had exchanged contract based on the old authority given on the Friday, on a technical-legal basis, that authority would have terminated upon the seller’s death. The seller’s solicitor would have exchanged contract, thus giving the impression that the seller’s conveyancer had the seller’s authority to exchange contract, when in fact such authority had terminated upon the seller’s death. The parties would have been committed to a contract with each other but in reality, the contract was frustrated (in legal terms) from the very beginning. 

What is likely to have resulted is some form of dispute resolution (either litigation or arbitration or mediation), which would have been time-consuming and costly. The seller’s conveyancer may also have attracted some form of professional slap on the wrist (putting it mildly!) for exchanging contract without re-confirming the authority to exchange. At the very least, on the day of contractual completion, the seller wouldn’t be able to complete the sale - because he’s dead and can’t give authority/sign paperwork - and the seller’s conveyancer either doesn’t have the seller’s authority to complete the sale or doesn’t hold a duly signed transfer deed (TR1) or more likely both.

In the round, it was the right decision to not exchange contract given the seller’s untimely passing. What now though? Wait until the grant of probate is issued? That may take several months, giving rise to the very risk that my client wanted to avoid - potentially not being able to purchase the property.

In this instance, the seller had left a valid and enforceable Will. The executors named in the Will were identifiable and were willing to act as executors of the seller’s estate and to continue with the sale. (In case you’re wondering, executors named in a Will may still relinquish their duties as executors before grant of probate is applied for. If that happens, either the Will is never executed or someone else may step up and be willing to act as executor of the estate.)

The fact a Will existed and the executors named in the Will were willing to administer the estate was fortunate for my client. It was also helpful that the firm of solicitors that the seller’s conveyancer worked at was engaged by the seller’s executors to apply for the grant of probate. (Even if they hadn’t, the solution I proposed - explained below - would still work. It just means there is an additional firm of solicitors/stakeholders involved.)

I amended the contract, naming the two executors nominated in the seller’s Will as the Seller in the contract. I also added a special condition to the contract stating that completion will take place “5 working days after a Grant of Probate is issued by the Probate Registry, naming the executors as the administrators of the deceased seller’s estate ”. (I’ve simplified the wording here for brevity.)

At the point when the contract is exchanged/entered into, the seller’s executors did not have the legal authority to sell the property to my client. They did, however, have the equitable authority to deal with the property, in accordance with the seller’s Will. The contract thus utilises that equitable authority to bind both parties. Completion is conditional upon the grant of probate. It is the grant of probate that gives the executors the legal authority to deal with the seller’s estate. At the point the grant of probate is issued, the executors are legally imbued with the legal authority to sell the property to my client by way of a deed of transfer (TR1). It is therefore important that completion of the contract is made condition upon the grant of probate. This effectively closed the open loop.

An application for a grant of probate is not a foregone conclusion. The process is still open to challenge by a beneficiary or other parties. Once the grant of probate is issued however, that challenge period is exhausted and thus the executors named in the grant of probate have the legal authority by law to deal with the deceased’s estate. A similar process can also work where the seller died leaving no valid Will - known as dying intestate. In that scenario, one or more willing individuals can still apply for Letters of Administration to act as the personal representative of a deceased’s estate.

If during the challenge period, a valid challenge is upheld and therefore no grant of probate is issued naming the ‘seller’ we named in the contract as the executors of the deceased’s estate, then the condition in the contract is never satisfied and thus completion cannot take place. For this reason, it is good practice to include a Long Stop Date by which date if the condition is not satisfied, the contract is automatically terminated and the parties returned to their respective positions prior to exchange of contract. In practical terms, this means the deposit paid upon exchange of contract is returned to the buyer and the parties go their separate ways without further recourse to each other. (For cash flow reasons, it is preferable to negotiate a deposit lower than the usual 10% of the purchase price - I have exchanged contract for clients for as low as £500.00.)

Some 10 months after the contract was exchanged, grant of probate was finally issued. 5 working days later, my client completed the purchase and immediately listed the property for sale with an auction house. My client expects to trade the property on for a minimum of £25,000.00 profit. (The property is in Walsall.)

An added benefit for my trader client purchasing a probate property is that the transaction became stamp duty land tax exempt due a specific relief available to property traders acquiring probate property.

If you’re interested in anything mentioned above, please reach out to me.