When charging rent isn’t a good idea

An executor will often be tempted to charge an adult child rent for their prior or continued occupation of the family home in a bid to appear fair-minded and egalitarian with respect to other beneficiaries.

What they don’t realise is that an executor is rarely held to account for failure to collect rent from real property that forms part of the residuary estate prior to sale, and unless the property is specifically gifted under the will, no specific beneficiary is entitled to this income.

What happens, though, is that the adult child can refuse to vacate the family home, remain there and actively frustrate the sale process, which often leads to substantial delays in administering a deceased estate.

A case study

Mark had been living in the property since 2013 with his mother until she had to move into aged care around April 2016. While Mark never paid rent, he contributed to household expenses and attended to the general maintenance of the property. An administrator appointed for the mother sought approval from the tribunal to sell the family home in October 2020 to fund her entrance into aged care; however, she died shortly after in January 2021, and the property was never sold.

Mark occupied the family home while his mother was in aged care and continued to do so after her death. Probate was granted to the plaintiffs in May 2021, and they repeatedly warned Mark to vacate the property and put him on notice of their intention to sell the property. In addition to failing to cooperate with real estate agents to allow the property to be listed for sale, Mark also made a claim for further provision in October 2021, seeking 100 per cent of the estate. Given that the property was the only significant asset of the estate, the property would have to be sold in order for the plaintiffs to reimburse themselves for expenses they had properly incurred and paid personally in administering the estate and to distribute the balance then remaining among the remaining beneficiaries.

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The plaintiffs had no choice but to seek summary judgment for an order for possession. In response to this application, Mark submitted that the court had no jurisdiction to make orders on the basis that he occupied the property as a tenant at will. Mark claimed that he had a right to exclusive possession when his mother entered aged care and, even if that tenancy at will had come to an end, he also claimed that he never occupied the property as a licensee and any factual disputes in this respect should be resolved at trial.

Conversely, the plaintiffs submitted that Mark resided in the property without their licence or consent and that Mark’s refusal to vacate the property was stopping the timely and efficient administration of the estate. In the end, an order for possession was granted to the plaintiffs with a stay of 30 days to allow Mark to find alternative accommodation.

License or residential tenancy?

Fundamentally, the distinguishing fact that differentiates a licensee from a tenant is that a tenant has a right to exclusive possession of the property in question. It is something to be wary of. If a right of occupation is given “for free”, a licence is unlikely to be considered a residential tenancy agreement on the basis that there is no requirement to pay rent. However, in the event that a licensee is charged rent on a weekly, monthly, or other basis, then this may convert a license into a periodic tenancy, which is most certainly a form of residential tenancy agreement in most states and territories.

In broad terms, an adult child who is considered to be a tenant of the family home subject to residential tenancy after the death of a surviving parent would have the following enforceable rights:

• Notice requirements to terminate the tenancy, which depend upon the type of tenancy and the grounds for termination, such as whether the property is to be sold.
• Use and quiet enjoyment of the property, which can complicate the attendance at the property by real estate agents and valuers for the purpose of selling the property.
• That the property be properly maintained and suitable for living in and that repairs are done within a reasonable time frame, which can lead to additional costs being incurred by executors and paid personally if the property is the sole or significant asset.
• Seeking compensation in the event that any of the above are infringed, which can cause undue delay in administering the estate and incur unnecessary costs, even liability.

Accordingly, executors who are unfamiliar with these rights should exercise caution before converting the licence of an adult child to reside in the family home after the death of a surviving parent into a periodic or fixed tenancy by charging them rent, which an executor is often under no obligation to collect. It can certainly be more trouble than it’s worth.

For this reason, an executor should always endeavour to preserve an adult child’s right to reside at the family home as a licence to do so, which can be revoked by an executor at any time. Principally, this can be achieved by avoiding the charging of rent, even if it is classed as a licence or occupation fee, to avoid any suggestion that a periodic tenancy exists or will be deemed to exist.

Instead, an executor should clearly state that the right of an adult child to continue to reside at the family home is a continuation of the licence to do so given by the testator and that, in the event that an adult child remains in the family home without an executor’s licence or consent, that an order for possession will be sought. Where this is a legitimate concern, an executor should consider seeking consent orders that an adult child will not oppose the issuing of a warrant of possession in the event that they fail to vacate the family home by a certain date, which is only possible if they remain a licensee.

Nick McColl is legal counsel at Equity Trustees.