Property Option Expert Blog

Not quickly… says Richard Spencer of BPE

I’m often asked whether the death of a legal owner will affect an option agreement that he granted. The simple answer is that the option will not be terminated (unless the contract states otherwise).

However, there may be associated problems with a lender or relatives of the owner.

Lenders

In most cases, a lender will not insist that the mortgage be repaid immediately on the death of the owner. The option holder could simply continue to make the repayments pursuant to the terms of the option.

If the deceased had life insurance, the proceeds may pay off the mortgage. If the mortgage is cleared, the option holder would have an option to buy a debt-free property at the previously agreed Purchase Price.

An issue may arise where a lender learns of the owner’s death and somehow discovers that an option has been granted without its consent. The lender may instigate repossession proceedings for breach of the mortgage. If it obtains an order for possession, it would take the property free of the option and the option holder would lose his right to purchase the property.

Relatives

Relatives will often not know about the option agreement until after the owner has died. They may expect to inherit the property and be upset to discover than an option agreement is in place. The executors will not be able to sell the property, as they will be bound by the terms of the option, which should prevent a sale during the option period to anyone other than the option holder.

A disgruntled relative may want to find a way to cancel or end the option. The terms of the option would not help him, unless the option holder was in breach of the terms of the agreement (in which case the executors might be able to terminate the option). The executors could argue that the deceased owner was coerced or induced to sign the option agreement. The argument would be much stronger if the owner did not take legal advice prior to signing. If successful, the contract could be deemed to be null and void.

In light of this investors do well to ensure that owners obtain legal advice before signing an option, even if you have to pay for it. This increases the likelihood that the owner understands what he is signing. It is also more ethical if you insist an owner has legal advice.

Richard Spencer is a partner in the Commercial Property team at BPE Solicitors. He acts for property investors and developers and has built a strong reputation in dealing with option agreements.

Tel: 01242 248232.

Email: richard.spencer@bpe.co.uk

Disclaimer: Although we endeavour to ensure any information given here is accurate and up-to-date, we make no representation or warranty as to their accuracy or completeness. The material is provided for information only and does not constitute legal or other professional advice. You should always seek appropriate legal advice from a suitably qualified person before taking any action.

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