After the initial shock and sadness when a neighbour dies, the people responsible for block management must inevitably consider the issue of service charges. Many blocks prefer leaseholders to pay monthly, so the deficit can soon become noticeable.
The deceased person’s estate will eventually pay the bills once probate is granted and before beneficiaries receive any funds or assets, so your funds are safe. However, that can be many months away. Inheritance Tax must be paid within six months, so hopefully executors will be able to clear liabilities such as service charge arrears soon after that. Beneficiaries may have a much longer wait for their as remaining assets are accounted for and liquidated, trusts set up in accordance with the will, etc.
So even though the full-service charge is payable until the flat is sold, you may need to be prepared for a bit of a cash flow issue. Make sure the executors are aware of the monies due and add them to the list of liabilities to be cleared before any cash or physical assets are distributed to the heirs.
Surviving spouses
Of course, if the deceased’s spouse remains living in the block, there is probably nothing to worry about, as usually the estate will pass seamlessly to them.
All the same, delays can easily arise if the surviving spouse isn’t used to running the household banking and accounts, or if adult children have taken over and just don’t realise there is an obligation. A gentle reminder, after a decent interval, that service charges are due should suffice.
Perhaps send an outline of what is due and when, how it has always been paid in the past e.g. by standing order? It might be a good idea to add a brief explanation of what the service charge is and how it is required under the lease or even offer to pop in and explain how it all works over a friendly cup of tea.
Single leaseholders
If there is no surviving spouse, then delays in receiving service charges are likely to run into many months. Once a bank is aware of a death, their personal accounts (not joint accounts) are immediately frozen until probate is granted. No money can leave the account other than to pay funeral costs and, with most banks, to clear inheritance tax. Paying tax liabilities is a prerequisite for granting probate.
Probate will always be needed when a property is involved. It is only for small estates worth between £5000 and £50,000 (depending on the banks or financial institutions involved) that probate won’t be needed.
So, the management company is not going to see any more service charge payments for the flat in question until probate is granted unless the family offers to pay it in the interim. There is no obligation on them to do so, but they may be more inclined to do so if you are proactive in helping them to market the property in anticipation of probate by letting estate agents and potential buyers in for viewings and generally keeping an eye on the place. We’d certainly advise making sure the water stopcock is turned off.
Let the building’s insurers know that is unoccupied, and that someone is checking it regularly: they may be happy with that so it should not affect your cover.
Understanding the probate process
Before the next of kin, other beneficiaries or executors named in the will can claim, transfer, sell, or distribute any of the deceased’s assets if they have a grant of probate. This is a legal document that’s needed to access bank accounts, sell assets, and settle debts after someone has died.
Applying for probate involves gathering information about the property, money, and possessions of a person who has died, proving that a will is valid, and confirming who has the authority to administer the estate of the person who has died. If there is no will, a grant of letters of administration is used instead, and it works in work in much the same way.
The probate process often involves a lot of complicated legal, tax, and financial work. The next step after identifying all the assets and liabilities is to submit HMRC returns and pay any inheritance, capital gains, or income tax due.
Only after probate has been granted, can the next of kin or the executor start to handle the deceased person’s assets, including paying debts and bills such as service charge arrears.
What if the assets don’t cover Inheritance Tax (IHT) before the flat is sold?
This can be a conundrum because probate is not granted until the tax liability is agreed upon and paid, and without probate, the executors cannot complete the sale of the flat.
In such a situation, beneficiaries expecting legacies may decide to pay the tax due as a short-term loan. HMRC might accept staged payments until the property is sold, or a bank might release money if it is paid directly to HMRC to pay an IHT bill.
None of this is your problem as block managers, but you do have an interest in showing beneficiaries that the sale can be quick by ensuring a management pack is prepared promptly and helping with viewings.
Disclaimer:
The sole purpose of this article is to provide guidance on the issues covered. This article is not intended to give legal advice, and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. We make no claims as to the completeness or accuracy of the information contained herein or in the links which were live at the date of publication. You should not act upon (or should refrain from acting upon) information in this publication without first seeking specific legal and/or specialist advice. Arthur J. Gallagher Insurance Brokers Limited accepts no liability for any inaccuracy, omission or mistake in this publication, nor will we be responsible for any loss which may be suffered as a result of any person relying on the information contained herein.
FP296-2025b