Authority to transact. As a rule and in practice, Real Estate must have a legal person or entity upon which title and tenure is vested. Such an entity thereby has the legal authority to transact on the property. As Inheritance is not the direct achievement of the beneficiary, these transactions tend to be rich on sentiment and highly emotional. An authority held by the executor does not in practice translate to an ability by the holder to transact without full consent of all the beneficiaries.
A lease, sale, management agreement or development of an inherited asset is determined by the dictates of the will of the deceased. An executor or trustee with specific legal authority cannot transact beyond the deceased’s instructions as to the holding and beneficiaries.
Assets inherited by a family present peculiar transactional challenges. In our culture, homes were traditionally built principally to cater for large families, and would offer a room/space for each child. The expectation was that the children would have shelter after the demise of the patriarch and maintain this asset. In cases where a few family members still reside in the house after the passing of the individual creates a delicate situation for disposing of the asset. The engagement of an experienced and knowledgeable valuer or agent with conflict resolution skills is critical to achieving a successful transaction. The agent should walk the process in a manner that mitigates these challenges, to enable the family remain united after the transaction.
The challenges of conducting transactions on inherited property
In our over 34 years of practice experience, we have been privileged to assist a substantial number of families with legal executors and trustees in the disposal of inherited assets. In all, we find that the major challenge is not that of determining who has the authority to transact but of managing disputes between family members. This challenge exists even where specific names of executors or trustees are indicated in the will and after going through probate. A nightmare scenario for surveyor agents, that not only stalls but may derail a well negotiated brief.
The disagreements usually arise from:
- The occupation of portions of the asset by a beneficiary, who stands to lose their abode and/ or source of rental income.
- Determining the mode of disposal; should they go for outright sale, development or lease.
- Situations where the beneficiaries are of disparate social and financial standing, the financially secure ones may either desire to hold onto the inheritance as a family home lease it, or enter into some form of developmental arrangement.
- Family members in financial distress will always demand an outright sale and will readily accept a market price while the financially secure would press for a sale price much higher than what the market reflects. A crisis of confidence is thus created for the agent/surveyor who would either be accused of working for the party that engaged it or be declared incompetent. The dissenting group would demand for a debriefing of the agent and or seek to deal directly with the prospective buyers already secured by the agent.
- Exaggerated expectations of the value of the assets.
In cases of vast family asset holdings with several beneficiaries going to the third generation, it is common for otherwise agreeing parties with different sentimental memories or varying needs as fortunes change, to have a rethink during the legal process or negotiation/closing of a deal.
In addition to establishing the legal authority and subsisting tenure and terms of the asset an experienced and knowledgeable agent will have to employ conflict resolution skills for a seamless and successful transaction.
Mitigation of conflict in these situations can be achieved by:
- Calming expectations, exaggerated expectations are a major dispute trigger, the agent should hold a meeting, with as many of the beneficiaries as possible including ones not listed as executor/s, to appraise them of the arrived value of the property, and the probable obtainable market price. They should be made to understand that the vagaries/dynamics of the property market will be the final determinant of the sale/lease price or development terms.
- Obtaining written and signed authority from the beneficiaries/executor to sell, lease, manage or secure redevelopment in some form – a joint venture agreement for example.
- Securing the title document, to ensure it is available for consummation of the transaction.
- Ensuring due diligence on the listed or implied beneficiaries to verify claims of assets being free of debts/encumbrances.
- Obtaining a signed list indicating the percentage of proceeds that will accrue to each beneficiary.
- Ensuring a meeting between representatives of the purchaser and beneficiaries. Transparency is key here, for it will shield the buyer from future extortion.
- Putting the proceeds in Escrow and disbursing as per the percentage list after tax deductions.
In conclusion, the challenges notwithstanding, acting for beneficiaries of inherited properties, opens doors to new business opportunities from increased patronage through introductions from satisfied family members and their other well-heeled relatives. The listed measures (which have served us well) with strict adherence to legal requirements, are sure to guarantee a less challenging transaction. Most inheritors from our experience are second, third and fourth generation offspring of the deceased. They have sentimental and emotional investments in the assets even though they have no physical investment therein. They rightly, feel entitled and will derail a good deal if not properly handled.
To earn that fee/commission, it is imperative that the agent must conclude disputes early in the brief and as amicably as possible.
We have shared our experience on large family inheritance disputes in this post and will welcome readers experiences as we aspire to increase our knowledge base.