Sun, 09 Oct 2011
By Nageena Khalique
It is well established that a local authority can take into account the value of property owned by a care home resident.
Let us consider a prospective claimant who has purchased a property with a relative, both contributing to the purchase price, where the property was held in joint names. Imagine that both parties occupied the property as their home for many years with no intention that either of them would have to leave the property or sell their share. Many years later, the older relative has to move into residential care. The prospective claimant still resides at the property.
Legal framework
Under the National Assistance Act 1948, where a local authority arranges residential care for a person, it is required to carry out a financial assessment and charge the person such sums as they are assessed as being able to pay. The financial assessment is made using the National Assistance (Assessment of Resources) Regulations 1992. The latest amendment to the 1992 Regulations is S.I. 2011/724.
A person whose care has been arranged by a local authority and who is looked after in residential care accommodation must normally meet the cost of their care if they have capital assets above a certain limit. Such assets include the person’s home, unless it is occupied by a spouse, partner, or a relative who is either over the age of 60, incapacitated or for whose welfare the person is responsible.
The care home resident’s assessable capital will be subject to the means-testing regulations and must meet the threshold before a charge for care can be made. The current limits in respect of saving and assets after which a section 22 1 charge may be imposed by the local authority is £14,250 and the limit on property after which a person may be charged is £23,250.
The local authority will require the resident to pay the costs of care from income and capital until the capital has reduced to a set minimal figure. Thereafter, the local authority will continue to fund the shortfall in the cost of care with the resultant debt being secured as a charge against the resident’s property, realised when the property is sold.
The s.22 charge is not a power to sell the property which is important for any third party living in the property, but operates like a mortgage which enables the local authority to collect fees owed to it from the ultimate sale of the property. Interest cannot be claimed under a s.22 charge until the care home resident dies.
Section 7 of the Charging for Residential Accommodation Guidelines (“CRAG”) published by the Department of Health (2011) provides the guidance a local authority is expected to follow in respect of the treatment of property.
The guidance refers to circumstances when the value of a property must be disregarded (paragraphs 7.002-7.006) but also as to when the local authority may exercise its discretion (paragraph 7.007). It refers to a balancing exercise between the need to ensure that residents with assets are not maintained at public expense and fairness in situations for example, where a person has given up their own home in order to care for the resident.
However, if the person entering care accommodation is jointly owned, the local authority must assess his or her actual interest in the property in order to decide whether the person’s capital is above the limit. The CRAG guidance states that the value of the property is likely to be heavily influenced by whether the joint owner(s) would be willing to buy the share of the person in the care accommodation. Paragraph 7.014 of the guidance states:
‘if no other relative is willing to buy the resident’s interest, it is highly unlikely that any “outsider” would be willing to buy into the property unless the financial advantages far outweighed the risks and limitations involved. The value of the interest, even to a willing buyer, could in such circumstances effectively be nil. If the local authority is unsure about the resident’s share, or their valuation is disputed by the resident, a professional evaluation should be obtained.’
The case of Chief Adjudication officer and Another v Palfrey et al reported in the Times 17 Feb 1995 was a Court of Appeal decision which concerned the valuation of the interest of a care home resident’s home where he was a beneficial joint tenant. It was accepted that his interest came into the calculation of his capital. The dispute was over the value at which it came into the reckoning. The relevant regulations were the Income Support (General) Regulations (SI 1987 No 1967) specifically Regulation 52 (capital jointly held) which provides: “…where a claimant and one or more persons are beneficially entitled in possession to any capital asset they shall be treated as if each of them were entitled in possession to the whole beneficial therein in an equal share…” for the purposes of calculating the amount of capital which the claimant is treated as possessing.
The question for the court was whether in arriving at a value for the claimant’s interest there was (a) a valuation of the whole of the property and then division, or (b) a division and then valuation of one half as divided. This was significant because by Regulation 49 the capital should be valued at its current market value.
In Palfrey the Court of Appeal agreed that the share of the family home belonging to a resident in a care home could effectively be valueless on account of the co-ownership situation. There was a collateral purpose in the purchase of the property between the joint owners of the property which effectively prevents the joint owner from forcing a sale of the home against the wishes of the other(s). This could have the effect of reducing the value of the resident’s assessable capital below the means-testing threshold and eliminating the applicability of the s.22 charge.
Furthermore, in Palfrey the co-joint tenant had made it clear she had no intention of buying the other share in the property. It was unlikely an outside buyer would be found and all that would be achieved would be co-occupation and speculative rights under section 30 of the Law of Property Act 1925. The Court found that what was required to be brought into account was the claimant’s beneficial half-share not the value of the house.
On the wording of Regulation 52 the “valuation then divide” construction was not open, which led in practice to a nil valuation. Nourse LJ said that Regulation 52 required the valuation of the claimant’s deemed (or actual) beneficial interest in an equal share in a tenancy in common. Regulation 49 required the valuation to be by reference to its current market value, “with the probable result that it will be given a nil value”.
Does Palfrey apply to the National Assistance (Assessment of Resources) Regulations 1992 which concern the assessment of the ability of a person to pay for accommodation arranged by local authorities under Part 3 of the National Assistance Act 1948?
Regulation 27 states as follows:
Capital jointly held
27.—(1) Where a resident and one or more other persons are beneficially entitled in possession to any capital asset except any interest in land—
(a)they shall be treated as if each of them were entitled in possession to an equal share of the whole beneficial interest in that asset; and
(b)that asset shall be treated as if it were actual capital.
(2) Where a resident and one or more other persons are beneficially entitled in possession to any interest in land—
(a)the resident’s share shall be valued at an amount equal to the price which his interest in possession would realise if it were sold to a willing buyer, less than 10 per cent and the amount of any incumbrance secured solely on his share of the whole beneficial interest; and
(b)the value of his interest so calculated shall be treated as if it were actual capital.
Regulation 27(2)(a) means that the resident’s share shall be valued at an amount equal to the price which his interest in possession would realise if sold to a willing buyer. There would be a 10% discount and a further discount to reflect the uncertainties of co-ownership. The wording of Regulation 27(2)(a) and Regulation 52 of the Income Regulations are similar.
It is not entirely clear whether Palfrey does apply to these Regulations and there is no relevant case law on this point. However, the statutory wording is not dissimilar to regulation 52 and paragraph 7.014 of the CRAG guidance places some emphasis on the effect of the imposed unwilling buyer (see paragraph 16 above). On the above analysis, the Palfrey approach appears to be the correct one.
The Local Government Ombudsman has previously suggested that a local authority should have “significant evidence or opinion giving it reason to disagree” when refusing to accept that an interest in jointly held property had a low or nil value (Complaint 03/C/09384) [28 June 2004].
In Wilkinson v Chief Adjudication Officer [2000] 2 FCR 82 (The Times 24 March 2000), the Court of Appeal again looked at the correct approach to the valuation of a person’s share in a joint capital asset under Regulation 49, for the purpose of determining whether the person’s capital exceeds the “prescribed amount” under the Income Support Regulations 1987. Mummery LJ noted that Wilkinson was different from the Palfrey case at p.11 as follows:
“…I have no doubt that Mrs Wilkinson could have obtained an order for sale of the House with vacant possession if Mr Brian Thomas was unwilling to buy her share from her at its market value or refused to agree to such a sale. Mrs Wilkinson’s share in the House came to her as an inheritance on her mother’s death. It was a gift by Mrs Thomas jointly to her two children in equal shares. It was an absolute gift in the sense that there was no restriction or superadded purpose expressed in the will. This was not a case like Palfrey where property was acquired by joint owners for a collateral purpose, such as accommodation for both joint owners, and that purpose would be defeated if one of those acquiring the property were to insist on a sale while that purpose was still subsisting.”[emphasis added]
Potter LJ agreed with Mummery LJ stating that so far as Regulation 49 is concerned, there is no dispute that the exercise of assessing Mrs Wilkinson’s capital available to be taken into account required valuation of her half-share at its current market value. This was the effect of Regulation 52 and the case of Palfrey.
He then stated that “equally, in the case of a claimant entitled to a half-share in a dwelling house and/or its proceeds of sale, the proper starting point for the valuation of the claimant’s share is half the market value of the house with vacant possession, the value of the half-interest being discounted in respect of any factors materially affecting the ability of the claimant to market the dwelling house.”
Conclusions
It is clear that if the home is jointly owned, the local authority will allocate a value to the share belonging to the care home resident. If the joint owner lives in the property, the share of the care home resident may be deemed to have nil value if the local authority follows the Court of Appeal ruling in Palfrey.
If on the other hand, the joint owner does not live there, having inherited their share, the care home resident could be deemed to own 50% of the open market value of the property. This follows the Court of Appeal ruling in theWilkinson case. It is important to note that the case of Wilkinson does not overrule Palfrey.
It seems clear to me that the question which needs to be addressed can be simply put: what is the value of the claimant’s interest in the jointly owned property and not what is the value of the property?
The value of any such interest (where the remaining tenant objects to a sale or is not willing to or buy the other share) must have regard to whether there was or is a collateral purpose. In the event of a dispute as to valuation, a professional valuation should be obtained in accordance with paragraph 7.014 of the CRAG guidance.
In the example above, the facts are similar to Palfrey in that the there was a collateral purpose when the house was bought jointly, that being that the property would not be sold if the claimant continued to live in the house in the event that older relative moved for whatever reason, whether into residential care or as a result of death. Any proposed sale of the house would have defeated that collateral purpose.
The background history to the purchase of the home and the length of time that both parties lived in the house is highly relevant. If documentary evidence for such a collateral purpose exists, this would self-evidently resolve any doubt but there are many family arrangements whereby relatives jointly purchase a property with the express intention of sharing a home with no intention that, should one party’s circumstances change, then the other party would be forced to sell.
Thus it seems to me that the court would not have ordered a sale of the property under section 30 of the Law of Property Act 1925 (or after 1997, section 14 and 15 of the Trusts of Land and Appointment of Trustees Act 1996).
These cases show that where a collateral purpose exists, it would be inequitable to order a sale of the property. The position in Wilkinson was that there was no collateral purpose, thus an order for sale could be made under s15 (above) because the house was an absolute gift to Mr Thomas and Mrs Wilkinson by their mother in equal shares with no restriction or superadded purpose expressed in the will.
It is noteworthy that Mrs Wilkinson appeared to have claimed income support but had failed to disclose her capital assets and inheritance. Whereas in Palfrey (as in the present case) the claimant was bona fides and a collateral purpose could be demonstrated.
1 S22 of the Health and Social Services and Social security Adjudication Act 1983 (HASSASSAA)
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