General power to buy or sell property under a power of attorney
An attorney under a registered EPA or financial LPA may make decisions about anything that relates to the donor’s property and financial affairs. This includes buying and selling property, and this can be done without obtaining the consent of the Court of Protection, provided that the power of attorney document contains no restrictions about dealing with the donor’s property.
General power to buy or sell property as a deputy
If someone has lost mental capacity without having a valid EPA or LPA in place, no one has legal authority to make decisions about their property until a deputy is appointed by the Court of Protection.
A deputy will usually have general authority under the deputyship order to buy and sell property without obtaining the consent of the Court of Protection. However, specific reference should be made to the terms of the deputyship order, before assuming that the requisite power is available.
If the deputy does not have sufficient formal authority, they will need to apply to the Court of Protection for an order authorising the sale of the property owned by the person who has lost capacity. If a sale is urgent, the deputy could consider entering into a conditional contract to sell that becomes unconditional on receipt of the court order.
If the person who has lost capacity is a trustee of a property and not a legal owner, then the deputy will not have authority to deal with the property in that situation, because a deputy cannot take over a trustee’s functions unless authorised to do so by the Court of Protection. This is discussed in more detail below.
Trusts of land and acting as a trustee
In England and Wales, there are two separate interests in land, referred to as the “legal interest” and the “beneficial interest”. This goes back to the 11th century where someone could only bring a case to court if it fell within the strict forms established at that time – for example, in relation to property, they had to show legal title. Often, however, a claimant had an interest in property that fell short of this, but which it would be unjust to deny, such as in early forms of trusts where the property was transferred to one person with the intention that it was held for the benefit of another.
In that situation, where justice was denied through the courts, the claimant could petition the King. The Lord Chancellor would deal with the petitions on the King’s behalf. Thus a two-court system evolved, one dealing with legal interests with its more rigid rules, and one administered by the Court of Chancery dealing with beneficial interests, based on legal principles, fairness and flexibility.
Here in the 21st century, it is relatively easy to evidence that someone owns the legal interest in a property, as their name is recorded as the registered proprietor with the Land Registry. There are still a few properties that are unregistered, but these are now rare.
On the other hand, the beneficial interest in a property is essentially an interest in the property’s economic benefit, and the owners of the beneficial interest in the property may be different from the legal owners. The beneficial owners of a property are not named on the legal title held by the Land Registry, and it can therefore be more difficult to evidence how the beneficial interests in a property are held.
The legal owner is said to hold the beneficial interest in the property on trust for the beneficial owner. The beneficial owner of the land will have a right to the income from the property or a share in it, and a right to the proceeds of sale of the property or part of the proceeds.
Problems can arise where a trust of land exists and one or more of the trustees has lost mental capacity. In that situation, the incapable trustee should be replaced from the trust before the legal estate can be dealt with by the remaining trustees. This is unless an attorney under an EPA or LPA is entitled to act for him or her. A deputy will not have authority to deal with property in a trust of land situation unless authorised by the Court of Protection.
All joint owners hold land as trustees. This is a very important fact to bear in mind- see further below.
Joint Tenants or Tenants in Common?
There are legal terms which distinguish the legal and beneficial interests in a property where there is more than one owner. Two or more co-owners of land can either hold the property as “joint tenants” or as “tenants in common”. More information about this distinction can be found in our article entitled “Joint Tenants vs Tenants in Common”.
Where co‑owners hold the land as joint tenants, the legal and beneficial interests are identical, and the ownership passes automatically to the surviving co-owner if one of them dies.
Where co‑owners hold the land as tenants in common, the legal and beneficial interests are severed, and the beneficial interests can be passed under the person’s will rather than passing automatically to the other owner.
Exercising trust functions as an attorney
All joint proprietors hold land as trustees and this is discussed in more detail below, but some sole registered proprietors may also hold land as a trustee. In those circumstances, the Trustee Delegation Act 1999 allows an EPA or LPA dated after 29 February 2000 to be used, provided that the donor of the EPA or LPA owns a beneficial interest in that property.
If someone is simply holding a property on trust without owning any of the beneficial interest themselves, then their attorney cannot exercise any trustee functions without authorisation from either the Court of Protection or the High Court.
The two trustee rule
Where land owners are holding a property as tenants in common, there must be at least two trustees and both must have mental capacity. This is because, under general land law rules, two trustees are needed to give a valid receipt for the proceeds of sale.
This rule can cause problems if one of the trustees loses mental capacity, as it leaves only one trustee able to deal with the property.
Appointing a second trustee as an attorney
If a second trustee is required, the Trustee Act 1925 generally allows an attorney under an EPA or LPA to appoint an additional trustee to act with the capable trustee without Court of Protection approval, with restrictions in certain circumstances.
However, replacing an incapable trustee always requires Court of Protection approval where the incapable trustee owns a beneficial interest in the property.
Appointing a second trustee as a deputy
The power to appoint an additional trustee under the Trustee Act 1925 does not extend to a deputy. In any event, a deputy cannot take over a trustee’s functions unless authorised to do so by the Court of Protection and the Court of Protection usually prefers the incapable trustee to be replaced, so is unlikely to authorise a deputy to take over the incapable person’s trustee functions.
However, a deputy can apply to the Court of Protection for an order appointing replacement trustees.
Removing an incapable trustee
The power under the Trustee Act 1925 can only be used to appoint a replacement trustee (or replacement plus an additional trustee); not to remove a trustee without replacement. In addition, an application to the Court of Protection for removal without replacement is unlikely to be successful, unless the trust is at an end or a continuing trustee is a trust corporation.
In addition, the High Court has inherent jurisdiction to remove a trustee without replacement. This may be the most convenient option if the incapable trustee does not own any of the beneficial interest in the property and there are no other trustees, or if the court’s assistance is required to replace a mentally capable trustee at the same time as the mentally incapable trustee.
Get in touch
If you have any questions about the co-ownership of land and mental incapacity, or any other issues arising out of this article, please contact Jane Whitfield at [email protected] or on 0118 958 9711.
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Jane Whitfield can meet with you to discuss your personal circumstances, your options and your next steps. This would normally take place in our office in Reading, Berkshire. During the coronavirus situation, however, all of our meetings are currently being carried out either by telephone or by video link.
If you would like to meet with Jane, please telephone the office so that an appointment can be made for you. If you would like to take up our offer of a one-hour £95 fixed fee meeting, please click for more details.
Jane is a Solicitor specialising in Private Client matters. Jane is a qualified Trusts & Estate Practitioner with STEP (Society of Trusts & Estates Practitioners) and a fully accredited member of Solicitors for the Elderly, as well as being a Dementia Friends Champion. Jane is also President of the Berks, Bucks & Oxfordshire Law Society.