Legal Tip 141: Buying a property subject to Probate

Buying a property subject to Probate


When you buy a property from a deceased estate the owner of the property is not around to sign the contract – they are dead!

So the only person that can sign is someone who has been legally appointed as the legal personal representative (LPR) of the deceased. This will be the executor or the administrator of the deceased.

Sometimes beneficiaries are keen to have the property sold so they start to market it before the appointment is made. There is no basis for them to sell the property until hey are appointed as LPR so the contracts must be subject to probate or administration being granted. It is like entering a contract subject to the approval of sub-division – if the approval is not given there is no contract.

With probate applications, the majority go through uncontested. But some applications fail and some are challenged. If someone else is granted probate, different to the one you entered the contract with, then you have no contract to buy the property.



Therefore when purchasing a property subject to the granting of Probate there is less chance than normal that the contract will complete. Consider this when spending money such as building inspections etc. It would be more risky than normal if you were to get early access and start renovating the property.

Also the time factor needs to be considered. Is there a sunset clause to allow the ‘vendor’ to pull out if probate is not granted within a certain time frame?

Probate could deliberately be slowed down if the sellers want to terminate the contract. A simple way to do this would be to get another relative to challenge the grant. Even simpler would be to delay applying for probate or to delay the supply of extra documents the court asks for before they issue the grant.

Before signing the contract do a search to see if there has been a notice of intention to apply for probate filed.In NSW this can be done at:
Search for a probate notice | Online Registry

Put in a surname and hit search. Look for “Notice of Intended Application for Probate”.

This will tell you someone is about to apply for probate and that this could occur 14 days or more after the date of the notice. It doesn’t mean they will apply or that they will apply within 14 days. They could wait for 9 months or more.

If the deceased had overseas connections probate may have been granted overseas and in that case you need to look for “Notice of Intended Application for Resealing”.

If there was no will you would need to look for “Notice of Intended Application for Letters of Administration”

The best thing to do is to put in the surname of the deceased and search and see what pops up. Click on all relevant results relating to that person. You will find the name of the deceased on the contract of sale.

If anything appears that means someone is keen and likely to apply or to have applied for probate. If nothing pops up then they are not as progressed in their plans or there may be other issues such as family members arguing – one or more members will be complaining along the lines of ‘you sold it too cheaply’ perhaps!


For QLD search:
http://www.queenslandreports.com.au/databases/probate-notice-database/


For VIC search
Search - Supreme Court of Victoria

 

Beware that probate can take a long time to be granted. A potential problem that can arise in NSW (and possibly other states) is stamp duty and penalty interest on unpaid duty.

in NSW stamp duty is liable at exchange of contracts, but it is not due to be paid until 3 months after exchange. If it isn't paid by the 3 month mark it starts to accrue penalty interest (which isn't deductible) at 10% pa from that date if the duty is not paid.

 

Phew, my client's application for probate went through smoothly, close to 6 weeks and property can be sold.

 

Larry was that 6 weeks since lodging?

 

Yes. Subject to any requisition. If application is done properly it should assist the probate registrar.

 

Yes, I had one a while back which took about 2 months I think - no requisitions.

 

Must have been a busy month.

 

I recently discounted a property when I learnt that it was subject to probate application and could take 90 to 120 days to settle. What could I have added into the contract to go ahead?

 

Depends on the circumstances. I had one client recently buy subject to probate and the vendor had a clause allowing either party to rescind if probate was not granted within 3 months. This was way too quick I thought and told the client to consider at least 6 to `12 months. I think the contract was amended to allow termination only after 12 months had passed and it turned out probate took around 10 months to be granted.

The Sydney property had jumped about 10% during this time so the vendor would have resold the property for more had the client went with their initial offer.

 

Good work Terry.

 

What would you suggest for the Perth market?

 

This person has now had offers on the property from developers - more than $1mil more in less than 2 years