Contracting Death- Real Estate

What happens when a contract is signed and the vendor or purchase passes away before settlement?

A ‘party’ is defined in the latest REIQ contract[1] to include the party’s executors, administrators or successors.

The take home message is simple: death does not release a party from their rights and obligations under the contract. This includes the parties’ obligation to complete the contract.

Do I need probate?

Practically, it may not be possible for the contract to settle until a grant of probate has been issued by the Supreme Court. A grant of probate, or a grant of letters of administration on intestacy, is a court order granting a person authority to execute the deceased’s will, or deal with property in accordance with the rules of intestacy (the Government’s rules). The grant takes approximately 10 weeks to be issued so the parties usually need to extend the settlement date out until the deceased’s executor has been able to get the grant.

The most unfortunate scenario here is where you act for the deceased’s party and the other side refuses to allow an extension of time.

What if the other party refuse to extend the settlement date?

Where a purchaser dies and the vendor refuses an extension, the vendor may place the purchaser in breach. On breach, the vendor could choose to take the purchaser’s deposit as well as either;

·        Terminating the contract, reselling the property and suing the purchaser’s estate for any loss they suffer on resale, or

·        Applying to the court for an order of specific performance, which compels the purchaser to complete the contract.

Where the vendor dies and the purchaser refuses to allow an extension, the purchaser may place the vendor in breach. On breach the purchaser could;

·        Terminate the contract and sue for damages, or

·        Apply for specific performance as above and sue for damages.

Who gets the proceeds?

In the event a vendor passes away before settlement, on settlement their personal representative becomes entitled to receive the balance of the purchase price on behalf of the deceased’s estate. In the event a purchaser passes away before settlement, if the contract settles then the property forms part of the deceased’s estate. In practical terms this means the property vests in the parties’ personal representative/s.

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[1] Clause 10.9(1)(d).

Transfer of title by a non-owner

The general rule is that a seller of goods cannot obtain a better title to such goods than that of the person from whom they were bought.

The Sale of Goods Act (SOGA) says, in section 24 Sale by person not the owner

“when goods are sold by a person who is not the owner thereof, and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner of the goods is by the owner's conduct precluded from denying the seller's authority to sell.”

There are some notable exceptions to this rule;

Estoppel

“Where the owner of goods is by their conduct precluded from denying the seller’s authority to sell”, the buyer obtains good title.

An owner may be precluded from denying a seller’s authority by reason of their (deceitful, negligent, fraudulent) conduct which, expressly or impliedly, constitutes an unambiguous representation to the buyer that the seller has his authority to make the sale.

Sale under a voidable title

Where the seller of goods has a voidable title, for example a title gained through fraud, but the title has not been avoided at the time of the sale, the buyer acquires a good title to the goods provided they’re bought in good faith and without notice of the seller’s defect of title.

A person who obtains goods by way of fraud can pass good title because their title is voidable, not void. Therefore a person who obtains goods by way of fraud can pass a title to a bona fide recipient who acts in good faith and presents value for the property.  The original owner then only has rights against the fraudster and not the new “owner”.

Sale by a buyer in possession:

The bona fide purchaser of goods from a buyer who obtained possession of the goods with the consent of the original seller obtains a good title to them

The original seller must have been lawfully entitled to sell the goods.

A purchaser from a buyer in possession only acquires a good title under the statutory provision where the purchaser receives the goods in good faith and without notice of the rights of the original seller of the goods.

o          The onus of proving such is on the purchaser.

o          Notice may be actual or constructive.

o          It is insufficient for the original seller to contend that by making further inquiries the purchaser could have discovered that the buyer in possession of the goods who sold them had no right to do so, unless of course there was something obviously suspicious such as to put the purchaser on inquiry.

Where the goods being sold are a motor vehicle subject to a security interest, the legal position of the bona fide purchaser will depend on whether the security interest has been registered in the national Personal Property Securities Register established under the Personal Properties Securities Act 2009 (Cth).

For more information contact our office on 1300 334 566

Land estates and Waste

The relationship between life tenants and persons with a vested interest as remainder can be quite complex, so let’s use some examples.

Margaret is a retiree who lives alone on her beautiful estate. Being concerned with the preservation of her family, in creating her Will she leaves her home to her daughter Julia for life and then to her granddaughter Emily. The property has a standing of approximately 300 trees, each centuries old with an estimated value of $10,000 each.

After her mother passes away, Julia decides to harvest the trees. She calls in bulldozers and has the entire reserve knocked down to make way for a giant swimming pool and tennis court. The value of the land falls greatly.

Given that Emily possesses a future interest in the estate, it may be possible for her to claim damages against her mother for this wanton act of waste.

Waste is any act which alters the nature of the land, whether for the better or for the worse. A tenant for life shall not commit voluntary waste. Voluntary waste is a positive act of injury to the property. For example:

•      pulling down or altering buildings,
•      opening a new pit or mine and
•      cutting timber

If the Will creating the life interest grants the interest “without impeachment of waste” or words to like effect, or the life tenant has a licence or other right to commit waste, then voluntary acts of waste which do not constitute equitable waste are permissible.

If the settlement or Will does not grant such a right and no right to commit waste has been granted to the life tenant, they will be liable in damages to the holder of the reversion or remainder interest. In this case, that person is Margaret’s granddaughter Emily.

To qualify Emily’s interest as a vested remainder and thereby give her access to a legal remedy, the following conditions must be satisfied;

1. 1.    The estate in remainder and the particular estate which precedes it must be created by the same instrument (the Will that gives Emily a future interest in the property must be the same Will which gives her mother the estate for life),
2.  The estate in remainder must become vested in possession immediately upon the termination of the prior estate (ie there must be no condition to be fulfilled before Emily can take the estate other than the termination of her mother’s interest),
3.  The person or persons who are to take the estate in remainder must be ascertained as at the date of the grant.

If something you have read here may apply to you or someone you know, make an appointment to speak with one of our experts.