Case study: Achieving a nil valuation through the lack of a willing buyer

Feature

posted 1 Sep 1999 in Volume 4 Issue 6

Case study:
Achieving a nil valuation through the lack of a willing buyer

The background
Mrs J, a widow aged 82, was admitted to a nursing home, no longer being able to continue living at Greenacres, the family home, worth approximately £120,000. Mrs J had a beneficial interest in the property by virtue of her late husband's will. The property had originally been in her late husband's sole name and had been bequeathed to the trustees of his will, namely his three adult children, Mr J Jnr., Mrs H and Mrs R. Mr J Jnr. lived locally and used the yard at Greenacres for the purposes of his business, whilst the bungalow at Greenacres was rented out to a tenant under an assured shorthold tenancy at a rent of £70 per week.

The will trust provided that the Trustees held Greenacres upon a trust for sale (now a trust of land) as to 50% in favour of Mrs J and the remaining 50% to be divided between the three children. Mrs J's only income was the state retirement pension and presumably a half share entitlement to the £70 per week rental income, although the author was later to discover that the rental income was received into a bank account and used to pay for the maintenance of the property by the trustees and as such did not constitute income of Mrs J. In addition, Mrs J had a small amount of savings of some £8,000 held in a bank account. Mrs J had also appointed Mr J Jnr. and Mrs H as her joint attorneys under an EPA.

The Financial Assessment

The local authority became involved and carried out a Section 47 assessment, concluding that nursing care was appropriate and arrangements were made for Mrs J to enter a local nursing home.

The local authority then carried out their financial assessment and attributed a value of £60,000 to Mrs J's share of Greenacres, presumably on the strength of Mrs J's or her children's information that she was entitled to half of the property. Mrs.J's income was assessed as the SRP plus her half of the rental income, with her capital being assessed as being approximately £68,000, thus rendering Mrs J liable to meet the full cost of the fees.

As she did not have the means to meet the fees, the local authority placed a charge against Mrs J's interest in Greenacres by way of a declaration under s22 Health and Social Services Adjudications Act 1983. At this point, Mr J Jnr and Mrs H contacted the author for advice as to how or whether this assessment could be challenged.

The Negotiations

The present assessment, if left undisturbed, would see Mrs J's estate diminish by approximately £13-£14k per year, based on nursing home fees of £350 per week. The author felt that the assessment gave every impression of ignoring the effect of Reg 27(2) of the National Assistance (Assessment of Resources) Regulations 1992 and the CRAG guidance at Section 7 on the valuation of jointly owned land. The author "fired" off a letter raising some essential points:

The valuation of Mrs.J's interest in Greenacres was incorrect - no "willing buyer" would pay £60,000 to purchase Mrs J's beneficial interest in a jointly owned property held with strangers, partly tenanted to a stranger and partly used by a stranger for business purposes. A nil valuation was suggested instead.

No allowance had been made in respect of the 10% sale costs .

The authority responded to the points as follows:

The authority called for a professional valuation of Mrs J's interest in Greenacres; a copy of Mrs J's late husband's will; and confirmation that none of the other joint owners were interested in acquiring Mrs J's interest in Greenacres and that no sale was contemplated.

No account was taken of the 10% sale costs as Mrs J had been assessed to pay the full charge

A copy of the will was forwarded and written confirmation was obtained from Mr.J Jnr and Mrs H that they were not interested in purchasing their mother's interest (a somewhat predictable response) and that there were no plans to sell Greenacres. The author also pointed out that the trustees had an inviolable power to postpone sale without liability under s4 of the Trusts of Land and the Appointment of Trustees Act 1996.

On the matter of the professional valuation, it was put to the authority that such a valuation would cost in the region of £150 to be borne by the resident Mrs J.

Admittedly, paragraph 7.014 of the CRAG guidance suggests that a professional valuation should be obtained where "the local authority is unsure about the resident's share, or the valuation is disputed by the resident ". There is however no mention of who should bear the cost of such a valuation nor is there any mention, to the author's knowledge, in the National Assistance(Assessment of Resources) Regs 1992 or subsequent amendments.

The author put to the authority that this was a case in which the valuation of Mrs J's interest in Greenacres was plainly nil because it would be impossible to find a willing buyer on the open market who would pay any consideration for an interest in a property jointly owned with strangers, occupied by a tenant and used for business purposes by one of the other owners.

The Outcome

The authority then conceded the weakness of its arguments and accepted a nil valuation without requiring a professional valuation.

A reassessment then took place, valuing Mrs. J's capital at £8,000 as opposed to £68000 and assessing her income as being her SRP. The Authority was then required to "tear up " its declaration of charge under s22 HASSASSA and remove its charge against the property and then bear the full cost of the fees, less the SRP. The other lines of argument were not pursued.

As a side issue, the authority, as is the practice, advised that an application for income support should be made but the initial decision of the Benefits Agency was to refuse the claim, again on the basis that the capital value of Greenacres was over the capital limit. This was immediately challenged by requesting a review. The outcome is unknown by the author as he then left the firm involved to set up his own elderly client practice. The author would however be extremely surprised if the Benefits Agency could continue to maintain its stance in the light of the supporting arguments and the decision of the authority on the same issue.

Conclusion

Whilst it could be argued that the outcome of this case has favoured the individual and her heirs, and that the taxpayer has lost out, it is worrying that the agencies concerned adopt an initial view which favours their interests but which completely fails to take into account the prevailing case law, regulations and guidance. Practitioners might note that it may be worth disputing the need for a professional valuation where there is clearly no "willing buyer", as otherwise the cost of a valuation can become another barrier that the resident needs to overcome to obtain a correct assessment.

Gareth Tierney-Jones
The author is a Solicitor practising in North Wales.