Leases Are Estate Obligations
A client serving as Personal Representative of his father's estate recently turned a car that had been leased by his father back over to the dealer under the mistaken belief that the lease had terminated at the father's death. A few weeks later, the Personal Representative received a Notice of Claim from the car manufacturer's financing department for the entire balance of the lease. The client wanted to know: how is this possible? Is the claim valid?
Generally, and unless a lease expressly states otherwise with a “void on death” clause, a lessor’s obligations under a lease are binding upon his or her estate. This applies whether the lease is of a vehicle, an apartment, office space, etc. The estate’s Personal Representative (“P.R.”), who stands in the shoes of the decedent, is therefore obligated to continue making payments under the lease (or make the informed decision to early terminate the lease). Lessors who have not been paid may seek to enforce claims against the estate by a legal action against the P.R. Consequently, a P.R. faced with making continuing lease payments should consider trying to get some use out of the leased property instead of just paying to surrender the property. In all events, the P.R. must carefully review the terms of all the decedent's leases, and other contracts, before taking action.
Consider a “Void on Death” Clause or Life Insurance
Most people do not consider the possibility of their own deaths when entering into lease agreements, and rightfully so. The odds of death during any given lease term, particularly relatively short apartment or car lease terms, are small. However, those concerned about the burden that on-going lease payments may place upon their estates (particularly for longer or more substantial leases) should try to negotiate a “void on death” clause into the lease. If this is not possible, the lessor should look to his or her life insurance as a source of funding the obligations of the estate.
It should be noted that a P.R. may be successful in negotiating a reduction in the balance of the lease due, as lessors and their debt-collection agents are often willing to give a substantial discount in exchange for receiving payment without a fight. Moreover, lessors have a duty to mitigate that may reduce the balance due from the lessee’s estate. For example, a landlord must make reasonable efforts to re-lease an apartment in the event of a breach by a tenant, just as an auto dealer must make reasonable efforts to resell a vehicle. Lessors cannot just sit back in the event of a breach and seek the maximum amount of damages possible from the lessee (or the lessee’s estate). All of these factors will depend on the circumstances of each lease.
In short, do not turn return that vehicle without carefully reading the lease signed by the decedent. One of the P.R.’s most important duties is to collect and review all contracts of the decedent, and to make informed decisions as to perform, compromise, or terminate those contracts. If you are the Personal Representative of an estate with questions about the decedent’s leases or other contracts, please give us a call today.