Charges on Property

Philip Laidlow explores several aspects of Section 22 of HASSASSA 1983

Section 22 does not offer a remedy or anti-avoidance provision as such to the Local authority (LA). It is available by way of practical back up to other recovery provisions. It occasionally, through its ability to offer security yet deferral, also smooths the rough edges of the some of the remedies.

TOLAATA 1996 has obviously had an impact on section 22 by the removal of sub-section 3. Below is how section 22 seems now to read.

"22 Arrears of contributions charged on interest in land in England and Wales

(1) Subject to subsection (2) below, where a person who avails himself of Part III accommodation provided by a local authority in England, Wales or Scotland -

(a) fails to pay any sum assessed as due to be paid by him for the accommodation;

and

(b) has a beneficial interest in land in England or Wales, the local authority may create a charge in their favour on his interest in the land,

(2) In the case of a person who has interests in more than one parcel of land the charge under this section shall be upon his interest in such one of the parcels as the local authority may determine

[(2A) In determining whether to exercise their power under subsection (1) above and in making any determination under subsection (2) above, the local authority shall comply with any directions given to them by the Secretary of State as to the exercise of those functions]

(4) Subject to subsection (5) below, a charge under this section shall be in respect of any amount assessed as due to be paid which is outstanding from time to time

(5) The charge on the interest of an equitable joint tenant in land shall be in respect of an amount not exceeding the value of the interest that he would enjoy in the land if the joint tenancy were severed but the creation of such a charge shall not sever the joint tenancy.

(6) On the death of an equitable joint tenant in land whose interest in the land is subject to a charge under this section -

(a) if there are surviving joint tenants, their interests in the land; and

(b) if the land vests in one person, or one person is entitled to have it vested in him, his interest in it,

shall become subject to a charge for an amount not exceeding the amount of the charge to which the interest of the deceased joint tenant was subject by virtue of subsection (5)

(7) A charge under this section shall be created by a declaration in writing made by the local authority.

(8) Any such charge, other than a charge on the interest of an equitable joint tenant in land shall in the case of unregistered land be a land charge of Class B within the meaning of section 2 of the Land Charges Act 1972 and in the case of registered land be a registerable charge as a charge by way of legal mortgage"

Preliminary

Although the right is a one against property it is not a right in rem in the wider sense. It can only operate in the context of the resident (the person who avails himself of Part III accommodation) and in support of an assessed sum due from that person, whether a straight charge or one arrived at by the application of such as the deprivation provisions. The section can only be used in respect of the resident and on land (in England and Wales - there is a territorial limit) in which the resident has a beneficial interest. From the LA point of view there is therefore immediately a huge deficiency in section 22. If land has been effectively disposed of then no matter how aggressive and obvious the planning, and even if that planning could be attacked under regulation 25 or section 21, the very fact of the gift thwarts the LA's ability to secure its recovery through section 22. Legal ownership of the land, or the interest in the land, is irrelevant. Even the most basic declaration of trust leaving the legal ownership in the name of the resident would be sufficient to skirt the potential application of section 22.

Beneficial and equitable ownership are occasionally not the same thing, and when relevant equitable ownership will only be sufficient for section 22 purposes if it is also beneficial.

Some LA's seem not to appreciate, or at least to ignore, the need for land, or the interest in land, to be beneficially owned by the resident. Where a gift is clearly caught by section 21 HASSASSA and a clear right to recover from the donee arises, then notwithstanding the donee has become the beneficial owner, there is no right to impose a charge in support of recovery. LAs may seek to agree a charge in these circumstances; they can be resisted on the simple ground that the donees are not the resident and section 22 simply does not extend beyond the resident.

No Limitation

Section 22 (1)(b) places no qualification on the status of the land or interest in it, This means that it is immaterial to the ability to charge whether or not the land, or the interest in the land, is assessable land which has to be brought into the reckoning as a capital resource in the financial assessment. An interest in land, more usually a house, which is disregarded capital will nevertheless be chargeable under section 22 in support of unpaid assessments. The obvious example is the situation where the resident has a spouse still alive and living in the matrimonial home.

The Charge and Interest

Section 7 says very little about the charge other than it can be created by a declaration in writing made by the local authority, ie it can be imposed unilaterally.

Section 22 is supported by section 24 which deals with the question of interest. Interest on the accruing and deferred debt only runs from the death of the resident. There are obvious cash flow advantages here. The logic of this is not obvious. Possibly it reflects the fact that section 22 might often be used to defer, yet secure, charges while some person other than the resident is living in the property. As a non-income producing use of the asset interest on the debt might be thought to be unfair. That though is not a full explanation. Section 22 is equally applicable where a resident deliberately and clearly fails to pay charges. Here bear in mind that despite what one sometimes reads in the newspapers the LA simply has no compulsion to force a resident to sell his or her property. This is compounded by the fact that the LA equally has no power to withdraw services not being paid for once the resident is within the system following an assessment of need.

Section 24 states that "any sum charged on or secured over an interest in land under this Part of this Act shall bear interest....." A charge which is not imposed under section 22 therefore is not within the ambit of section 24. Some LAs (for various purposes) will seek to identify their ability to charge, or the relevant remedies and anti-avoidance provisions they can apply, and then offer to the resident a standard form of charge for agreement with his or her advisers usually leading to the execution of a bipartite document. That takes it out of section 24 and out of the regime where the right to charge interest is not crystallised until the death of the resident. Advisers need to be wary of agreeing bipartite charges unless section 24, or something parallel is expressly incorporated, as otherwise the question of interest becomes a matter for the actual document and/or general law.

Joint Property

The LA can just as much impose a charge on a person's interest in jointly owned property as solely owned property, and this applies equally to joint tenancy property and tenancy in common property. This raises the question of whether the valuation aspects of Re Palfrey apply ie. that joint owners have little of value to be charged; one can see an argument for this, sub-section (5) places a limit on the charged amount against a joint tenancy interest equivalent which is the value of the interest had it been a severed tenancy in common interest. However, there is nothing wider limiting the amount of the charge in respect of an actual tenancy in common interest or an outright solely owned interest. One has to presume therefore that generally the limit to what can be charged is what can actually be recovered by one route or another by the LA as charge.

Burden

By sub-section 1(a) the LA can only impose a charge if the resident fails to pay any sum assessed as due for accommodation. This will often be clear enough. Particularly though where the LA is seeking to apply the deprivation provisions to bring notional capital back into the estate in order to make an assessment, then in cases of genuine dispute one can see that there might be a grey area. The resident could arguably say there has been no failure to pay any sum assessed as the sum assessed is improperly assessed. One would suppose the burden to be on the LA but for two reasons it can in practice be easily reversed. First, the phrase "any sum assessed is due to be paid" could be read as suggesting that a bona fide assessment by an LA is a proper one which can be supported by a section 22 charge irrespective of any technical disagreement behind the assessment. Secondly, and perhaps more pertinently, as the charge can be imposed unilaterally, it is very easy for an aggressive or firm LA simply to impose the charge. That puts the pressure on the resident if the charge is to be cancelled and does give the LA some leverage.

Advice

CRAG annex D, offers a few guidelines, not in any great depth, to LA's. Item 3.6 is the most pertinent observation.

"3.6 If the LA is considering placing a charge on a resident's interest in land, the resident should be advised to or assisted to consult a solicitor about this procedure"

Given that the LA has the power to create a charge unilaterally that is probably a highly conservative statement of the law. It will certainly be relevant though where, as is still sometimes the case, LA's attempt to get the resident to agree a voluntary charge. A charge created voluntarily, or undertakings etc given to avoid charges, will in certain cases be capable of being set aside by the resident if independent legal advice was not received or, as is sometimes the case, the LA seek to agree a charge where strictly they have no legal entitlement to do so; see for example in a different context Inche Noriah -v- Shaik Allie Bin Omar [1929] AC 127, 135 - 136.

Philip Laidlow, Senior Associate, Eversheds