Reasons to choose Wilson Browne
If a legal owner is mentally incapable of managing their financial affairs they may also not be able to enter into a conveyancing transaction and you should not accept their signature.
Unfortunately, whether somebody has the mental capacity to enter into a conveyancing transaction is not a straightforward question to answer and will differ in every case.
Section 2 of the Mental Capacity Act 2005 states:
a person lacks capacity in relation to a matter if at the material time he is unable to make a decision for himself in relation to the matter because of an impairment of or a disturbance in the functioning of the mind or brain.
It does not matter if such impairment is temporary or permanent. Lack of capacity cannot be established by mere reference to:
- a person’s age,
- or behaviour
However you should be alerted to some conditions which affect a person’s mental capacity such as:
- severe learning disabilities,
- brain injuries,
- mental health issues,
- or memory loss.
Just because a person may have one or more of these health conditions it does not mean to say that they lack capacity but greater care and due diligence should be applied in these circumstances.
It is most important to understand that capacity is both time and decision specific. Meaning that the client must have capacity to make a particular decision at the relevant time. The time element to consider is the time of giving each relevant instruction in the transaction and again at exchange of contracts.
Give Careful Consideration As To Who Is Giving You Instructions
You will need to give careful consideration to who is giving you instructions; why is the person entering into the said conveyancing transaction; who are the net proceeds of sale being paid to. Look out for any family members of people pressurising or encouraging a sale; a transfer or gift of the property or the person making a large capital contribution to a purchase.
Make sure that you speak to the client directly to make your own decision as to whether that person has the relevant capacity to enter into the transaction. The test is subjective.
Assess The Person's Capacity
In assessing a person’s capacity you will need to be aware of any diagnosis that the client has which may affect their capacity and whether such impairment or disturbance affects their ability to make decisions.
The client will need to understand the information you are providing them about the conveyancing transaction, the nature of any decisions you are asking them and why those decisions are needed and be able to weigh up the consequences of different options presented to them. The client must also be able to retain that information for long enough to make the decision.
This is important because it doesn’t necessarily matter that they forget a decision they made last week or yesterday, providing that if asked again their answers are consistent and that they are able to retain the information long enough to give you an answer. The client must also be able to communicate their instructions to you, but the manner in which they communicate may not be your chosen method and when dealing with vulnerable people it is important to be flexible with your approach.
Consult The Family and Question Their Reasons
Ask questions of the family members whom you may have contact with as to the situation and explain to those giving you instructions that you cannot accept instructions or a signature if you believe that the legal owner lacks capacity. It is a relatively high test of capacity to enter into a conveyancing transaction especially given that a person’s home is usually their main financial asset.
When considering what decisions are needed in a conveyancing transaction is it is not just the concept of understanding a sale/ transfer/ purchase of a property but the nature and the detail of the contract and transfer (including the contractual agreements that are set out in the Seller’s Property Information Form and the Fixtures, Fitting’s and Contents Form); the consequences of the disposition; understanding the value of the proceeds of sale including having a concept of the value of money e.g. how much the property is worth and any tax implications associated with the transaction e.g. Capital Gains Tax or Stamp Duty Land Tax. Merely wanting to sell/transfer/purchase/gift a property may not be enough.
If you have considered all of this with your client and you are satisfied that your client has capacity then proceed but keep a detailed record/attendance note of conversations and the factors that have led you to believe that the client has capacity, in case this is challenged in the future.
Seek Your Client's Consent To Commission A Report Assessing Capacity
If you are unsure you could seek your client’s consent to commission a report assessing capacity. This could be from a GP, a psychiatrist or registered social worker with the relevant skills to assess a capacity.
Remember capacity is both decision and time specific so an example of the question to ask your report to cover would be “does X have capacity to enter into a sale/purchase/transfer/gift of the property at [property address] to [a third party at arms length/ family member] and the legal contract and transfer associated therewith”.
Make sure that you give the relevant background to the assessor including the price, whether this is full market value, whether the transaction is at arms length, any other relevant information and include any concerns that you may have. The cost of the report should be paid for by the client and is likely to be in the region of £200 to £500 plus VAT.
If The Client Does Not Have Capacity - What Next?
If you are told or it has been established that your client does not have capacity then someone can sign on their behalf if there is valid authority in place through one of the following documents:
1. Enduring Power of Attorney
2. Lasting Power of Attorney for property and financial affairs
3. Court of Protection Deputyship Order
4. Court of Protection Trustee Order
There is some simple terminology to remember in these documents.
The person entering into a power of attorney (whether an enduring power or lasting power) is called the Donor. This is likely to be one of the legal title owners in a conveyancing transaction. The people with legal authority to sign on their behalf are called the attorneys and there can be more than one person appointed under the document.
Enduring Power of Attorney
An Enduring Power of Attorney will be valid if it was signed before 1st October 2007 by the donor and all of the attorneys.
If the Enduring Power of Attorney is unregistered (not registered at the Office of the Public Guardian) you must take steps to ensure the donor is still capable of managing their affairs and make a record of why instructions are coming from the attorney.
If however the donor has become or is becoming mentally incapable of managing their financial affairs the attorneys are under a duty to register the Power of Attorney at the Office of the Public Guardian (“OPG”) in order for them to continue using it. The registration process is mandatory and it takes a minimum of 5 weeks.
If you are aware the Donor is incapable you will only be able to act for the Attorney’s if the document has been registered at the OPG and may need to insist that this is done before the transaction can be completed.
Lasting Power of Attorney
There are two types of Lasting Power of Attorney: Property and Affairs and Health and Welfare.
In order to act in a conveyancing transaction you must be presented with a valid property and affairs Lasting Power of Attorney. It must be registered at the Office of the Public Guardian for it to be valid.
If it is not the registration process takes between 3 to 4 months. You will need to take instructions from the attorneys and look out for whether they are appointed jointly or jointly and severally.
If jointly all attorneys must sign and be a party to the transaction. If jointly and severally any one of them can sign. Make sure that you read the Lasting Power of Attorney carefully and look out for any restrictions or instructions in the power which may affect the property transaction.
Court of Protection Deputyship Order
If there is not a Lasting or an Enduring Power of Attorney in place but the legal owner has lost capacity somebody can apply to the Court of Protection for authority to manage that person’s affairs under a Court of Protection Deputyship Order.
Within those proceedings the Court will make a declaration (based on evidence) that the person is not to be able to manage their financial affairs. In the Order the person will be called the Patient, “P”. The person appointed to manage their affairs will be called the Deputy. The application takes between 5 and 9 months.
The Deputyship Order can only be used if the property is in the sole name of the legal owner. You must check the detail of the Order to ensure that the Order authorises a sale/purchase of a property (this is not automatic in a deputyship order and often specific authority will need to be sought from the Court).
There will be a specific paragraph in the Order dealing with property transactions or a separate Order all together. The Order may have limitations as to the value or order that a restriction or trust must be entered into.
Court of Protection Trustee Order
If the legal title of a property is in joint names and one or both of the legal owners are mentally incapable a Trustee Application must be made to the Court of Protection to transfer/sell/purchase a property.
A trustee order will retire the incapable owner from the trusts of the property and appoint a suitable trustee in their place to act in the transaction. You must however ensure that in conjunction there is a Deputyship Order in place to receive the net proceeds of sale.
It is important to note that when accepting instructions via a Power of Attorney or a Court of Protection Order, without a specific Order or authority from the Court of Protection the attorneys or deputys will have not power to gift a property or percentage of a property or transfer at an undervalue. Specific authority for such transactions must be sought directly from the Court of Protection if dealing with an incapable owner.