By Sheree du Preez (Associate at Hayes Incorporated)
REALISATION OF ESTATE ASSETS AND THE MANNER AND CONDITIONS OF SALE
Introduction
In this article we address the obligations of the executor and the rights of the heirs in an instance where estate assets, specifically immovable property in the deceased estate, have to be sold by the deceased estate.
There are many circumstances in which it may become necessary for an executor to sell estate assets. This may be due to estate assets being bequeathed to more than one heir in circumstances where joint ownership is not practical or desirable or the deceased estate is suffering a cash deficit which will not be filled by the heirs.
In these circumstances the executor would need to sell the immovable property and divide the net proceeds thereof between the heirs. Often, there is no directive in the will dealing with the sale of immovable property. The question then arises as to the manner and conditions upon which the immovable property must be sold.
Section 47 of the Administration of Estate Act 66 of 1965 (“the Estates Act”) provides that the executor may realise estate assets, subject to the approval of the heirs.
Discussion and case law
Section 47 of the Estates Act, amended in 1983, reads as follows:
47 Sales by executor
Unless it is contrary to the will of the deceased, an executor shall sell property (other than property of a class ordinarily sold through a stock-broker or a bill of exchange or property sold in the ordinary course of any business or undertaking carried on by the executor) in the manner and subject to the conditions which the heirs who have an interest therein approve in writing: Provided that-
(a) in the case where an absentee, a minor or a person under curatorship is heir to the property; or
(b) if the said heirs are unable to agree on the manner and conditions of the sale,
the executor shall sell the property in such manner and subject to such conditions as the Master may approve.
Section 47 of the Estates Act issues clear requirements for the sale of estate assets –
a) Public auctions are not a core requirement and estate assets can be realised in any other manner, such as a private treaty.
b) Notedly, prior to the amendment of section 47 in 1983, estate assets could only be sold by public auction, unless otherwise authorised by the Master.
c) The executor is obliged to seek the approval of the heirs, in writing, as to the manner and conditions of the sale.
d) Only in an instance where the heirs are unable to agree on the manner and conditions of a sale, will the executor be entitled to approach the Master for directives.
Of further importance is to note that section 47 is only applicable in instances where a will has no contrary provisions pertaining to the manner and conditions of a sale.
The importance of the approval of heirs was highlighted in a 2011 judgment by the South Gauteng High Court¹ .
- In this case, the previous executor of the estate, without the consent of the heirs or the Master, sold immovable property to the Respondents (“the Bontekonings”).
- The previous executor was later removed as the executor of the estate and replaced with the Appellant (“Schofield”).
- The Bontekonings successfully applied to court for the transfer of the property into their names pursuant to the agreement reached between them and the previous executor.
- Schofiled appealed the decision of the Court a quo and the appeal Court granted an order rescinding a previous order for the transfer of the property to the Bontekonings.
- The order of the South Gauteng High Court was made on the grounds that, in selling the estate assets, the previous executor had neither the consent of the heirs, nor the consent of the Master and as such the executor was not empowered to sell the property and could not accordingly be forced to pass transfer of the property to the Bontekonings.
- Compliance with section 47 meant that the executor could only sell the immovable property, if the executor had obtained the approval of the heirs who had an interest in the matter.
The aforesaid case highlights the dangers and pitfalls of non-compliance by the executor with section 47, especially for innocent third-party buyers.
The consent of heirs is not only a very important requirement for purposes of deciding on the manner and conditions of a sale, it is also a legal requirement to obtain the Master’s certificate in terms of section 42(2) of the Estates Act.
In terms of section 42(2) of the Estate Act, an executor who desires to effect transfer of any immovable property in pursuance of a sale (as opposed to merely transferring the immovable property into the names of the relevant heirs) shall lodge with the Registrar of Deeds, together with all such other transfer documents as may be required to effect transfer, a certificate by the Master that no objection to such transfer exists.
The Master will not issue the aforesaid certificate if the heirs did not consent in writing to the sale.
Heirs are therefore afforded further protection by the procedural requirements contained in clause 42(2) in that although an executor might be able to bypass the provisions of section 47 of the Estates Act by, for instance, selling the property by public auction without the consent of the heirs, the Master will not issue the required section 42(2) certificate without having received the consent in writing from all of the heirs. Registration of transfer in the Deeds Office will therefore not be effected without the section 42(2) Master’s certificate.
Conclusion
Although an executor of a deceased estate is afforded a rather wide discretion when it comes to realisation of estate assets in instances where a will makes no provision as to the manner and conditions of the sale, section 47 obliges the executor to realize estate assets in accordance with the approval of heirs.
The executor does therefore not possess an unrestricted right in regard to the manner and conditions of sale. The executor does, however, have an obligation to ensure that if any estate assets are to be realised, it must be done at the best possible price for the benefit of the heirs.
While it is true that a public auction provides a financial benefit in that the purchaser will usually be liable for the auctioneer’s commission, versus the deceased estate seller being liable to pay normal agent’s commission in the case of a normal sale, this is by no means the only financial consideration as the deceased estate will still incur expenses such as advertisement costs, amongst other costs. Furthermore, there might be an heir interested in purchasing estate property (at the marked related purchase price) or there might even be a sale to a third party without an agent, in which case no agent’s commission will be payable by the deceased estate seller. In this way, neither the seller nor the purchaser pays any auctioneer’s commission or estate agent’s commission and the estate still receives the market related purchase price, which is to the benefit of the heirs.
Heirs are therefore advised to ensure that they understand and exercise their rights. In particular they should be aware of the authority that they have in respect of the approval of the manner and conditions upon which the property is sold. The proper exercise of these rights is a useful tool to ensure that estate assets are sold in a manner and on conditions which are in the best interest of the estate, and ultimately the heirs.
¹Schofield & others v Bontekoning & another [2011] JOL 27906 (GSJ)