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When Care Arrangements Breakdown

Simon Ennals a Solicitor with Nottingham firm Barrie Ward and Julian Griffiths discusses the recent judgement in Ellis v Chief Adjudication Officer It is a very interesting case involving the problems that can arise when transferring property to the next generation.

1 July 1997

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Simon Ennals a Solicitor with Nottingham firm Barrie Ward and Julian Griffiths discusses the recent judgement in Ellis v Chief Adjudication Officer

It is a very interesting case involving the problems that can arise when transferring property to the next generation.

When an elderly disabled woman transferred her house to her daughter, on the understanding that the daughter would pay off the mortgage and care for her mother, the transfer was a "gift subject to a condition subsequent". When the daughter failed to look after her mother, and evicted her from the house, then the gift failed, and the ownership of the house reverted back to the mother. So held the Court of Appeal, upholding the decision of a Social Security Commissioner, as they dismissed the mother's appeal against the finding that she had capital over the Income Support capital limit, by reason of the assumed value of this house.

This case dealt with the increasingly familiar situation of where a frail elderly person, comes to an arrangement with a relative to provide necessary care - involving the transfer of the property to the relative - and the arrangement subsequently breaks down. What happens to the transferred property, and how is it viewed for the purposes of assessing means tested benefits, or assistance with the costs of residential care? This case deals both with what happens to the beneficial ownership of the property, and also with how the elderly persons interest in the property should be valued.

The Facts

Mrs. Ellis, the claimant, is a seventy year old disabled woman, receiving higher rate Attendance Allowance. The house where she lived was very unsuitable, being on a hill, and with several steps up to get to the road from the front door. It was also in considerable need of repair. Mrs. Ellis came to an arrangement with her daughter to come and live with her to look after her. Mrs. Ellis would then transfer the house to her daughter, who would then pay off the outstanding mortgage (of about £6,000). The plan was then to try and sell the house and move to somewhere more suitable, possibly to somewhere with a "grannyflat" to preserve Mrs. Ellis' independence.

All went according to plan, and the property was transferred to the daughter by Deed of Gift. The home was duly put on the market, and Mrs. Ellis informed the Income Support office that she was no longer the owner of the home, and no longer needed benefit towards mortgage payments. The response of the Benefits Agency was to disqualify her from further Income Support payments under the "notional capital rule" (Regulation 51(1) IS (General) Regulations). They considered that she had deprived herself of capital in order to effect a right to Income Support. Mrs. Ellis appealed against this decision, but the Nottingham Social Security Appeal Tribunal (SSAT) upheld the Adjudication Officers decision.

Shortly after the appeal hearing the arrangement between mother and daughter broke down, and Mrs. Ellis was evicted from the home. She was housed by the Local Authority under Homelessness Legislation, and sought legal advice. She was initial advised to register a caution to assert her interests in the proceeds of sale, but agreed to withdraw this having been advised by the Land Registry that it could not be justified.

A few months later she moved to a bungalow in Derbyshire, and again claimed Income Support. The claim was again refused, and she again appealed, this time to the Derby SSAT. This second tribunal upheld the decision of the first one, and it was against this second decision that Mrs. Ellis appealed to the Social Security Commissioner. The appeal was in fact made some three years after the SSAT decision, after Mrs. Ellis had received advice from a local advice agency, and her appeal was accepted late by the Commissioner.

The Social Security Commissioner's Decision

The Commissioner directed an oral hearing - it was by now five years after the claimant had transferred the house to her daughter - and decided to set aside the tribunal decision and give the new decision himself, in view of the age of the case. 'The Commissioner considered that the Nottingham SSAT had clearly be wrong in applying the "notional capital Rule". At the time Mrs. Ellis was still living in the home. As such, even if she was treated as "notionally" still owing the property, it would have been disregarded for Income Support purposes as long as she still continued to live in it.

The Derby SSAT was set aside for giving insufficient reasons as to why they had reaffirmed the previous SSAT decision. In proceeding to make a new determination, the Commissioner took the view that the transfer of the house to the daughter was not an outright gift, but had strings attached - namely that the daughter would:

a) Care for her mother and

b) Pay off the outstanding mortgage.

He considered that the affect of these conditions was to create a gift "subject to a condition subsequent'. When the daughter failed to comply with the first condition by evicting her mother the gift failed. As a result the property reverted back to the mother, with the daughter holding it on trust. The Commissioner cited the mother's attempts to register a Caution as evidence that she intended these conditions to apply, even though the transfer to the daughter made no reference to any such conditions.

The Commissioner then proceeded to value Mrs. Ellis' capital in the house, and concluded that however much the costs involved in obtaining possession might be, bearing in mind the potential need for litigation, she would nevertheless have an asset worth considerably in excess of the IS capital limit (then £6,000).

Mrs. Ellis was granted leave to appeal to the Court of Appeal, and the appeal was heard in April 1997. There were three grounds argued on her behalf:

1. That the transfer to the daughter was not properly a gift, since the agreement to pay off the outstanding mortgage of £6,000 constituted valuable consideration.

2. That the agreement by the daughter to "look after " her mother was too uncertain to amount to a condition, breach of which would lead to a gift failing.

3. That if the Commissioner was correct, and the beneficial interest in the home did revert to the mother, then it was an error to conclude that the costs of obtaining possession of the interest could not bring the value to below £6,000. It was argued that the Commissioner had failed to take account of the effect on the market value of Mrs. Ellis' interest of the need for legal proceedings to establish the extent, if any, of her interest in the house. Since his Judgement would not be binding on a civil court, any capital could only actually be realised by means of essentially speculative litigation.

The problem was exacerbated by the fact - unknown to the Commissioner - that the daughter had actually sold the home and moved elsewhere shortly after the Derby SSAT hearing. This meant that the mother's remedy - if she had one - would be against the proceeds of sale, rather than the house itself.

The Court of Appeal Judgement

The unanimous Judgement of the Court was to uphold the Commissioner's decision. Staughton LJ, giving the main judgement, considered the three arguments put to the Court:

1. He rejected the argument that the transfer was not a gift, but a contractual arrangement. There was no "intention to create legal relations" he found. "domestic agreements in the family often lack that characteristic", he commented. He agreed that this was a gift subject to a condition subsequent.

2. Considering the objection that the condition of "caring for the mother" was too uncertain, his lordship was clearly worried by the possible implications of such a finding.

"there must he many elderly parents who part with property to their children in the faith of assurances such as that given to Mrs. Ellis. Is the law to say that unless they make a contract to that effect they can do nothing to protect their interest. "?

He held that the term was sufficiently certain to be effective as a condition.

3. When considering the value of the mother's capital asset, Staughton LJ was not prepared to take into account the fact that the house had by now been sold. This has not been known to the Commissioner, and his opinion on value could not be interfered with.

Otton was also very reluctant to find the agreement for the daughter to care for the mother to be unenforceable. This, he said, "would discourage and undermine any similar arrangements in families when a parent places his or her trust for the future in a close relative". Otton LJ also upheld the Commissioner's approach to valuing the mother's capital as represented by the house that was deemed to have reverted to her. However displaying remarkable candour in accepting that his conclusion bore little relation to the mother's "real" capital wealth, he quoted from Hophouse LJ in Chief Adjudication Officer v Dowell (unreported):

it is very difficult for a Court to approach any question of the construction of the regulations on the basis that there is any intention that the regulations shall have, in their application, a relationship to reality or any identifiable statutory policy of justice ".

In keeping with this approached he upheld the view of the Commissioner who "by implication disregarded the fact that in a civil suit, the daughter might have established a better claim."

Commentary

The end result, from the mother's point of view it is submitted, is both unrealistic and unjust.

She is denied Income Support, and could be denied Housing Benefit, were it not for the fact that the Local Authority are taking a more realistic view of her affairs. It is highly likely - as her health deteriorates - that she may need residential care, yet be regarded by the Social Services Department as having substantially in excess of the £16,000 limit. Yet the practical reality is that the property she is deemed to own - or the proceeds of sale of that property - is in the sole legal and beneficial ownership of someone else. It is only by speculative litigation that she could recover any capital from this arrangement, and the Legal Aid Board would be most unlikely to fund such litigation, in this author's view. Yet it is her interest in such an uncertain asset which the Court of Appeal has now held would be worth over £6,000 to a willing buyer! It is submitted that it is grossly unrealistic to expect a third party to pay anything for such a speculative capital asset.

This case directly effects one disabled elder claimant. However the situation is sufficiently common for the Judgement to have worrying implications for other "gifts" with an expectation of "care" in return. The only sensible advice, so far as this author can see, is this:

However much clients do not want to, nor see any need, it is vital to set out precisely the nature of any arrangements to transfer property to younger relatives. including whether there are intended to be any conditions attached, and if there are, precisely what they are.

Simon Ennals, Solicitor, Barrie Ward & Julian Griffiths, 5 Clarendon Street, Nottingham, NG1 5HF