Background to the Case of Ms Z
Ms Z and her husband, Mr Y, both China nationals, agreed to purchase a London new build property in 2017. The property price was just over £500,000. When contracts were exchanged in 2017, Ms Z and Mr Y paid 10% of the Price (totalling around £50,000) as the deposit. Pursuant to the contract terms, they paid further deposits totalling around £80,000 in 2018 and 2019. Therefore, the total deposits paid were around £130,000.
On 28 January 2021, the property was built and the developer’s solicitors served a Notice to Complete on our firm. Pursuant to the contract, this meant that completion should happen 21 days later (i.e. by 18 February 2021). However, Ms Z died on 28 January 2021, which was the day that Notice to Complete was served.
As the original buyers to the contract were both Ms Z and Mr Y, and with the death of Ms Z, this meant that they could not proceed to complete the purchase of the property. Instead, Ms Z’s estate required to obtain probate so that there would be an authorised representative (known as a Personal Representative) who can represent her. However, obtaining probate within 21 days was impossible as it takes time to apply for probate, and the UK courts take about 6 months to 1 year before issuing the probate certificate.
Pursuant to the contract, if the buyers fail to complete by 18 February 2021, a further “Special Notice to Complete” would be given by the developer to the buyers, and if completion does not happen within 10 working days, all deposits would be forfeited. We wrote to the developer’s solicitors and informed them not to serve special notice as Mr Y was ready and willing to complete himself. However, the developer’s solicitors refused to complete with Mr Y only as the original purchasers were both Ms Z and Mr Y. We then informed the developer’s solicitors not to forfeit the deposits as the death of Ms Z was a supervening event meaning that the performance of the contract was impossible to fulfil now. We argued the deposits should be returned to Mr Y upon him obtaining probate.
On 8 April 2021, the developer’s solicitors proceeded to serve Special Notice to Complete with the notice expiring on 22 April 2021. After 22 April 2021, they rescinded the contract and forfeited the £130,000 deposit. However, they informed us to discuss the matter again with them upon Mr Y’s probate being obtained. In the meantime, the developer proceeded to sell the property to a third party.
Probate Application
As Ms Z did not leave a Will, based on the UK’s Intestacy Rules, Mr Y would have the power to apply for probate as he is the spouse of Ms Z.
In the UK, the Probate application form is submitted to court at the same time as submitting the Inheritance Tax forms to Her Majesty’s Revenue and Customs (HMRC). That way, the court knows the net estate amount and the amount of tax (if any) that is required to be paid. We filed these forms in September 2021.
As Ms Z’s death occurred in China and she did not leave a Will, we were required to submit an expert opinion from a China lawyer as to who the beneficiaries are based on China law. The China lawyer confirmed the following:
In China, according to the Civil Code of the People’s Republic of China, currently there is no Probate system like the UK. Instead, according to Article 1127 and Article 1130 of the Civil Code of the People’s Republic of China, the first in order is: spouse, children and parents. The second order is: brothers and sisters, paternal grandparents and maternal grandparents. The inheritor first in order shall inherit to the exclusion of those in the second order. In general, the inheritors within the same order shall inherit in equal shares.
The court also queried why probate was required if the property was not yet built. I replied that probate is still required because the developer may return the deposit monies to the deceased’s estates and in order to do so, probate was required.
In May 2022, the court granted Probate to Mr Y, which meant that Mr Y officially became the Personal Representative of Ms Z’s estate. Mr Y informed me: “Thank you very much for your email below, informing that the probate has been granted”.
Return of Property Deposit
In June 2022, I forwarded the Probate certificate to the developer’s solicitors. Although it took some time for the developer to respond, in November 2022 a Settlement Agreement was agreed so that the entire £130,000 deposit monies that Ms Z and Mr Y paid would be refunded back to them. Mr Y signed the Settlement Agreement and in February 2023 the developer’s solicitors remitted to us the £130,000 settlement monies. We then remitted these monies to Mr Y.
Conclusion
When purchasing a new build property, the property may take a few years before it is built. The period before contract exchange and completion may therefore be a few years. If the buyer dies before completion, the deposit monies may be returned to their estate. It is good practice for the buyer to leave a Will identifying the executor as this will help expedite the probate process. However, if there is no will and the death occurred outside of the UK, as was the case here, then an expert opinion is required as to the intestacy laws in the deceased’s country of residence (here being China). Once it is identified that the deceased spouse has the power of being a beneficiary under China and UK law, the court is then likely to grant probate to the surviving spouse. Once probate is granted, the developer’s solicitors should be given a copy and negotiations can commence regarding the return of the buyer’s deposit monies.
About the Author, Daniel Cheung
I, Daniel Cheung, am a solicitor-advocate with 17 years of experience. I am experienced at drafting wills and dealing with probate. As the Head of Private Client, much of my interactions are with individual clients and protecting their individual rights.
Contact:
Email: danielcheung@zhonglun.co.uk