How should I deal with non-payment when the leaseholder has passed away?

Of all the reasons for non-payment of service charge or ground rent, the death of the leaseholder is one of the most difficult to deal with as you are no longer dealing with a person who directly owes the money, but someone who is closely affected by the death and is handling with the deceased’s property, whilst also dealing with their loss.

Cheryl Bates, property management solicitor at Brady Solicitors explains what happens with service charge arrears when a leaseholder has died.

The best-case scenario is that the deceased will have written a will, with a named executor who is likely to appoint a solicitor – a paid professional who will want to resolve matters as quickly and efficiently as possible.

But not everyone makes a will – in fact studies show that over half of the population haven’t, which is significant as a management company or managing agent will need to work out who to serve the demands on and where to serve proceedings, as writing to the deceased at the property is not going to be effective service.

What happens to the property when the leaseholder dies?

When a leaseholder dies, their estate must be “administered”, which is the term used for the process of paying debts and legacies and distributing the rest of the estate. When property is involved, a grant of representation is always required. There are two kinds – a grant of probate, which will be applied for by an executor named in the will, and a grant of letters of administration when there is no will.

Under the Administration of Estates Act 1925, the leasehold interest passes on death to either the executors named in the former leaseholder’s will or to the Public Trustee if there was no will (which is known as intestacy). In most intestacy cases, the spouse will inherit but where there is no spouse, the estate will be inherited by other relatives in order of priority.  There are seven categories of relative, but children are the first port of call.

Where there are no relatives, the estate passes as bona vacantia (a Latin term roughly translated as “ownerless goods”). This usually means that the Crown becomes entitled to the estate, though these assets are now collected by the Treasury Solicitor and are used for general public spending.

What happens to any outstanding service charge debt?

The service charge debt is owed by the estate of the deceased leaseholder therefore any claim for service charge or ground rent must be issued against the estate.

A family member of the deceased could offer to settle the debt in advance of probate being obtained and then reclaim the payment as an expense from the estate, but this rarely happens. Relatives can often lie low when demands for money are received making court proceedings unavoidable.

Who do we issue proceedings against to recover the debt?

The answer to this question is provided by Civil Procedure Rules 19.8:

When a grant of probate or administration has been made, the claim for the outstanding arrears must be brought against whoever is named as the personal representatives of the deceased.

When a grant of probate or administration has not been made, the arrears claim must be brought against ‘the estate of’ the deceased; and the claimant must apply to the court for an order appointing a person to represent the estate of the deceased in the claim.

There is however a helpful provision at 19.8(3) which states that

“A claim will be treated as having been brought against ‘the estate of’ the deceased if the claim is brought against the ‘personal representatives’ of the deceased but a grant of probate or administration has not been made or if the person against whom the claim was brought was dead when the claim was started.”

In easier English, this means that a claim for the unpaid service charges can be issued before an individual is nominated to represent the estate, although you may need to make a  further application to amend the defendant later.

Practical steps – our advice for managing agents when handling arrears from a deceased leaseholder

  1. Get your internal processes correct: ensure a service charge account is marked with “leaseholder deceased” to avoid insensitive letters being sent out, and ensure all letters are addressed to “the estate of [name of former leaseholder] deceased”.
  2. Be prepared for the potential additional complexity and expense of recovery claims.
  3. Talk to your solicitor to check if probate or administration has been taken out and to ascertain who the claim should be issued against. Is it the executor? The administrator? Or should an application be made to appoint a person to represent the estate and, if so, who should that be?

Recovering arrears from the estate of a deceased leaseholder takes sensitivity and an understanding of both leasehold law and probate administration. For help or advice in this difficult area of property management please do get in touch.