Saturday, September 16, 2006

Re Hawkins Estate: Who Pays the Repair Bill

In your will, you can allow people to enjoy your residence successively. For example, you might allow a friend or relative to live in your residence after your death, but then provide that if he or she moves out, or dies, someone else gets the residence.

Typically, the person who lives in the residence is required to pay for property insurance, property taxes, and upkeep while living there.

What if the residence requires major repairs?

This issue arose in a recent British Columbia case: Re: Estate of Lynn Louise Hawkins, 2006 BCSC 1374.

In her will, Ms. Hawkins created several successive interests in her condominium. First her mother could live in the condominium. When her mother no longer wished to live in it (or on her death), her friend Ms. Craig could live in it, followed by Mr. Henderson. Finally, if Mr. Henderson did not wish to live or continue to live in the condominium, it would be sold, with half of the sale proceeds going to Mr. Henderson, and half to other beneficiaries.

Unfortunately, the condominium was located in the Land of Leaky Condos. It was in North Vancouver, B.C. (We don’t seem to have that problem in relatively dry Kelowna. But, out of a sense of fair play among the regions of British Columbia, one developer built some expensive—and apparently collapsible--condominiums here. I digress.)

While Ms. Craig was living in the condominium, the Strata Corporation made special levy assessments against her condominium unit of $71,650 for repairs to fix the building leaks (total costs to fix the building were about $3,200,000), and $4,478 for legal costs to recover the repair expenditures.

Ms. Craig paid the special levies, but sought to recover the costs from Ms. Hawkins' estate by a mortgage against the condominium in her favor providing for repayment when she moved out or died. The main asset of the estate was the condominium, and there were insufficient other funds in the estate to reimburse Ms. Craig.

Under Ms. Hawkins, will, while Ms. Craig was living in the condominium, Ms. Craig would “pay all maintenance costs and repairs that appear to my Trustee to be reasonable and necessary.”

Payment of the special levy was both reasonable and necessary. The issue was whether Ms. Craig or the capital beneficiaries (in other words, those who would ultimately get the proceeds of the condominium when it is sold) should bear the costs.

Mr. Justice Ralph agreed with Ms. Craig. He held that Ms. Hawkin’s will should be interpreted in accordance with the general principle that the person with the right to live in the residence is required to pay day-to-day repairs, or those of a recurrent nature. Major structural repairs should be borne by the capital beneficiaries.

Mr. Justice Ralph noted that it would be unfair to hold Ms. Craig responsible “by the ‘luck of the draw’” for the full costs of the repair, especially in light of the appraisal evidence that the repairs would increase the value of the condominium for the capital beneficiaries when it is sold.

Although the will did not give the executor and trustee any borrowing powers, Mr. Justice Ralph authorized the executor to grant the mortgage in favor of Ms. Craig to secure the special levy. He relied on section 11 of the Trustee Act, RSBC 1996, c 464.

As a lawyer who drafts wills, I take two points from this case.

First, it is useful to distinguish in the will between day-to-day repairs and major structural repairs. Usually, it will make sense to require the person who has the right to live in the residence to pay day-to-day repairs, while major repairs can be borne by the estate.

It may not always be clear if a given repair falls into one category or the other, in which case the will could give the trustee power to decide. But, if the trustee were also one of the beneficiaries, this power would put the trustee in a conflict of interest.

Secondly, where the size of the estate permits, it is a good idea to have funds set aside for major repairs and any other unforeseen expenses.

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