Where a Personal Representative (PR) is required to administer an Estate which includes a property in poor condition, can the PR make improvements to the property in the hope that a higher sale price can be achieved and does the PR need the consent of the beneficiaries to spend money to achieve this?
One of many duties of a PR is to identify the deceased's liabilities and assets. This will involve recovering payment of any debts owed to the deceased, paying any debts due, and convert assets into money (where appropriate).The PR must keep the assets safe and has a duty to administer the estate to the beneficiaries and any creditors of the deceased.
Duty to invest
If the estate's assets will not be distributed for some time, a PR may be under a duty to invest the monies in order to avoid loss or waste to an asset or investment. The terms of the Will may specify a general requirement to invest or even a requirement to make specific types of investment.
Trustee Act 2000
The general power of investment arises from Section 3 of the Trustee Act 2000. Rules about advice and the duty of care are set out in Sections 1, 4 and 5 of the Trustee Act 2000. This governs the kind of investments that a PR can make and the extent of the duty and exercise of reasonable skill and care imposed upon a PR.
Provided the PR is able to pay all specific legacies detailed in the Will and has advertised for unknown creditors and has covered all testamentary and administration expenses and is left with a cash sum available in which to carry out the improvements the PR may consider if that cash can be "invested" in the property, subject to the PR's duties.
In the absence of an express power of investment in the Will, PR's have an implied statutory power of investment under Section 3 of the Trustee Act 2000. Under Section 8 of the Trustee Act 2000, the PR has all the powers of an absolute beneficial owner in relation to estate land. Provided a PR is confident they can show they have acted with due diligence, skill and care, considered diversification, and reviewed investment, etc. it is likely a PR will have sufficient power to use estate cash to improve the property but with a duty to act prudently. (The full range of duties are beyond the scope of this article. Full details can be found at www.legislation.gov.uk/ukpga/2000/29/contents)
Residuary beneficiaries do not have proprietary rights over specific assets (e.g. the property itself) unless they have been appropriated to them. They only have a right to take action against the executor if the estate is maladministered. The beneficiary therefore may not be able to prevent the executor from using cash to improve the property.
Maladministration of an estate
If the PR's decision to use cash to make the property more saleable is made negligently, without properly weighing up the risks involved, the residuary beneficiaries may be able to bring an action against the PR's if they can show this caused loss to the estate.
To reduce the risk to the PR of a negligence action, an independent property valuation and report advising on the merits of sale with and without improvements may be beneficial. It may show the extent of the PR's exercise in their reasonable skill and duty of care and whether the cost of the improvements was justified in the delay in sale and expected increase in value. In the current property market, where there is a degree of uncertainty, the PR may consider that it will be difficult to sell the property quickly without carrying out improvements. On the other hand, there may be a risk that the property still doesn't sell and that the cash that is injected into the improvements is not recouped on sale.
Advice to Personal Representatives
A PR is probably not obliged to involve the residuary beneficiaries in the investment choice but it may be prudent to consult them to avoid a claim later if the cash investment in the property does not result in an increase in the sale price or a quicker sale.
A PR who is genuinely unsure on their options and risks a claim from residuary beneficiaries may seek the Court's guidance by making an application for directions in the estate administration before taking a particular course of action. Such an application will add costs to the estate administration but will give protection for a concerned PR.
Each estate will have different issues and our Contested Probate Team have encountered similar situations over the years. We are well placed to advise on a case by case basis. Contact our Contested Probate Team for a free initial consultation.