It is not unusual for a family member to live in a home owned by a deceased person: either because they were living in the property before the deceased died, or because they have moved in after the death.  The occupier often does not pay any rent.

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While not unusual, it is problematic from an estate administration perspective unless the deceased’s will grants the person a life tenancy, or at least a right to reside, in the property.

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Occupation of a property has a value, and if a beneficiary is living in the property, that value is being received by one beneficiary in priority over the other beneficiaries. Unless rent is paid, or an adjustment for the rentable value is made, then the occupier is receiving a benefit under the estate not provided for by the will, and the other beneficiaries are losing the notional benefit of the option to rent out the premises and receive a share of the net rent. Legally, this can amount to 'waste', for which the executor can be liable.

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Practically,  using the property for commercial purposes can have tax implications, and the property may require repairs and renovations before it can be legally offered for rental (to comply with minimum standards for tenancies – the details of which are dependent upon the jurisdiction).  Those issues can mean that it is not economically viable to rent out the property.  In those cases, it is tempting to say: ‘what is the harm?’.

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The correct question is ‘what is the benefit’?

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How does the estate benefit from the occupation?

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General Principles

The executors must act to maximise the estate for the beneficiaries. If the estate is not benefitting from the occupation, the executors should not permit it.  

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Imagine if the person occupying the property were a random stranger, who took occupation without permission. The executor would act to remove them immediately, and it would be no defence for the squatter to say: ‘you weren’t going to rent it out anyway – what is the harm?’.  

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Understood in this way, it is clear that occupation of the deceased’s property during the period of the estate administration should generally not be permitted. The complicating factor is not legal, it’s personal.  Usually, the person occupying the home is a family member, and perhaps has occupied the home for years before the deceased’s death. It can seem harsh or unfair to require that person to start paying rent or to vacate the property.  

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On the other hand, there are some benefits to having the property occupied – it generally means the property is maintained and is not targeted by vandals or squatters. Insurance premiums are generally higher if the property is unoccupied for an extended period. These are all costs to the estate which can be mitigated by having a person occupy the property, and may legitimately be considered by the executor. It may be that a low rent, or perhaps an agreement to cover the basic costs of the property (rates, insurance, land tax), is legitimately a beneficial arrangement for the estate.

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Discretion - but not unlimited

An executor has the power to exercise reasonable discretion when making determinations about a right to occupy. The best solution will vary according to the circumstances, family dynamics and the number of beneficiaries whose interests are affected.  

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Ideally, the consent of the affected beneficiaries can be obtained. The beneficiaries may agree to waive any entitlement to rent, or to a lower than market rent be paid, or perhaps to postpone the obligation to pay, with the ‘rent’ adjusted from the beneficiary’s final estate distribution.

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If the affected beneficiaries do not agree, however, the executor who permits the occupation anyway risks being subject to a claim for waste - the failure to maximise the estate for the benefit of the beneficiaries. The greater the commercial rentable value of the estate property, the greater the risk. The executor will need to be ready to justify the decision economically, not just the executor's own view of what's 'fair'.

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Occupation by Executor

If the person occupying the property is themself an executor, then the occupation, even with a rental amount payable, is even more problematic.  The executor has a duty of absolute good faith, which requires that they cannot take a personal advantage without the informed consent of all of the affected beneficiaries.

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An executor cannot simply waive, or determine the rental value for their own occupation of the property – doing so is an obvious conflict of interest and duty. The executor has a personal interest in minimising the rent payable, and a duty as executor to maximise the rent payable.

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Ignoring this conflict can lead to the removal of the executor on the grounds that they are preferring their own interests over the interests of the estate.

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Fundamentally this conflict can only be resolved with the informed consent of the other beneficiaries, or an order of the court.  Families are often willing to permit the home to be occupied by one of their number, even without payment – but this cannot be assumed.  If informed consent is not forthcoming the executor should vacate the property, or seek court approval.

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Conclusion

Navigating the rights of occupation of the deceased's property is one of the early tests of an executor.

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It is a test that many executors fail.

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This issue arises very frequently in estate administrations, and the parties always consider that their circumstances are special. Heated disputes and expensive litigation can be triggered by a beneficiary occupying an estate property, and, invariably, the parties on both sides believe they are in the right.

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It can be tempting for an executor to just ignore the problem, or permit the status quo. However, Failing to properly recognise and address the inherent conflict of estate property occupation can lead to the executor being removed by court order, and the executor being required to pay compensation to the beneficiaries.

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