Mental Capacity Act and Tenancy: An open question

[This piece is cross-posted from the brilliant Nearly Legal blog, who I approached with a question about contracts and tenancies. Readers interested in capacity and housing issues might also be interested in a paper by the National Development Team for Inclusion called ‘The Real Tenancy Test’. Over to Nearly Legal – answers on a postcard please…]

I have had a question from the editor of the Small Places blog, which is a very fine blog on human rights and community care, with attention to Court of Protection matters. I think it is a question which might benefit from the assembled housing law mavens who read NL from time to time.

The question concerns the position of someone lacking capacity under the Mental Capacity Act 1985 when an independent tenancy is sought. There is conflicting guidance and threatening case law to deal with.

The starting point is that someone lacking capacity cannot enter into a binding contractual agreement, including a tenancy.

The frequent advice of local authorities and others used to be to say to, for instance, parents of adult children with learning disabilities, ‘sign on their behalf’. This was, of course, always bad advice – it would have resulted in an instant breach of the primary or principle residence requirement of an assured shorthold tenancy. But since the Mental Capacity Act 2005, it would be dreadful advice, as under the Act nobody is vested with the authority to enter into a contract on somebody else’s behalf unless a) they have a lasting power of attorney; b) they are appointed a property/affairs deputy by the court; c) the Court of Protection authorises the contract.

But none of these are easy options.A person without capacity can’t usually enter an LPA, and either of the other two options require a £400 fee, legal costs and a time consuming application to the Court of Protection. In a situation where a tenancy may only be briefly available, or someone has had to leave home or is leaving institutional care and needs a tenancy urgently, there may not be time. And of course, the fee and costs may not be affordable.

To add to the difficulties, there is competing guidance. The Court of Protection guidance on tenancy agreements from June 2011 states, pretty categorically:

If a person lacks the mental capacity to sign the tenancy agreement or terminate it, then anyone intending to sign on the person’s behalf can only do so if they are authorised to do so by the Court of Protection (unless the person had capacity to make a power of attorney and has done so)

While clearly this would be the most authoritative route, the problems with pursuing it have already been noted.

On the other hand, there is Department of Health guidance from March 2011 which states (at page 21/22)

In law, a tenancy taken on by someone whose lack of capacity is known by landlord is “voidable”. The person has the same rights as any other tenant and the same obligations unless the tenancy is voided. Only the tenant or someone acting on behalf of the tenant with the legal authority to do so (an attorney or a person / deputy appointed by the Court of Protection) can void a tenancy by showing that at the time the tenancy was taken on, the tenant did not have the capacity to make the decision and the arrangement was not in their best interests, When the tenancy is voided the tenant is no longer bound by the terms of the contract. Voiding a tenancy for lack of capacity is therefore possible at law, but it is rare that a tenant or their attorney, person / deputy appointed by the Court will decide to do this unless they wanted to stop the arrangement because if they did they would not have any right to remain in the property and would in practice simply be giving notice in the normal way. Therefore, the fact that the tenancy is voidable is unlikely to have any practical impact if the tenant is receiving proper support to manage their tenancy. They are entitled to Housing Benefit to pay their rent in the usual way regardless of their capacity.

My first thought was that this DoH guidance is right. It is pretty much given that a tenancy agreement, as with any contract, if entered into by someone who at the time lacked capacity is a voidable (not void) contract. It would only be voidable by the person who lacked capacity to enter the contract, thus the landlord could not use the tenant’s lack of capacity as a device to end the tenancy. Until such time as it is voided, the contract (or tenancy) continues with the obligations on both parties, including the rent liability, so housing benefit should be paid.

However, a 2011 decision of the Upper Tribunal on a housing benefit appeal makes this less straightforward. Wychavon District Council v EM [2011] UKUT 144 (AAC) (29 March 2011) concerned a profoundly mentally and physically disabled 20 year old adult. He rparents cared for her and had had a home specially constructed for her. This, with round the clock care had deeply stretched their financial position. They made a claim for housing benefit for the daughter for the home, in respect of rent which would in turn cover the mortgage. There was no Court of Protection authority in place at the time.

While the Upper Tribunal rightly found against a submission from the LA that a written tenancy agreement was required, the key finding was that:

A tenancy agreement requires two parties – the landlord and the tenant. Here the claimant was not, and was incapable of being, a party to any agreement. Regardless of her capacity to consent, she could not and did not communicate any agreement to the tenancy and I infer that she could never have been asked to. There simply was no such agreement, and therefore no liability to pay rent.

Following Hart v O’Connor [1985] AC 1000, the Tribunal found that

even if on the face of it there has been a contract, it is void if the one contracting party knew that the other contracting party lacked sufficient mental capacity to reach such an agreement, because the first contracting party would have been aware that the other party was not consenting to the agreement.

Commissioner Mesher’s decision in CH/2121/2006, and that of Commissioner Henty in CH/663/2003 distinguished as having, however problematically, been decided on the basis that there was a voidable contract, rather than a void one.

The real problem here is that Wychavon states that if the landlord is aware of the prospective tenant’s lack of capacity at the point the tenancy is entered into, it would be void rather than voidable. If it is, then no housing benefit would be paid. The difficulty the UT had in distinguishing the earlier Commissioners’ decisions is clear – falling back on the ability of the person without capacity to attend the hearing and ‘communicate to a degree’ to suggest that somehow they must have indicated willingness to enter a tenancy agreement that they actually had no power to enter and that the parents had entered on their behalf. Whether Wychavon is correct or not (see below) it has undone what appears to have been a discreet policy-based approach/nod and a wink to housing benefit for those lacking capacity.

Wychavon would therefore appear to present a real practical problem for those lacking capacity, their carers and landlords otherwise prepared to enter a tenancy agreement, but who face potential non=payment of housing benefit. Unless the landlord is unaware of the prospective tenant’s lack of capacity, the threat is a void agreement, not a voidable one.

I briefly toyed with some alternative arrangements, including a form of trust, but could come up with nothing that wouldn’t fall foul of the requirements of an AST.

This falls – to some degree – outside my practice and knowledge. I’m also, frankly, a bit too busy and knackered to head off to educate myself. But it is clearly a serious issue for many, including some of the most vulnerable individuals of all. I understand from Small Places that there are some anxious organisations trying to make sense of the situation.

So – questions:

1. Is Wychavon rightly decided? I suspect that it is – that knowingly entering a contract with someone who lacks capacity makes the contract void rather than voidable – but haven’t dug any deeper yet.

2. If it is, are there alternative arrangements that would give rise to a viable tenancy, but would not require an order of the Court of Protection?

Over to you…

[Update by Nearly Legal: 8/10/11.
Since the initial post and the comments below. I have now had a chance to work through the case law, in particular Hart v O’Connor and Imperial Loan Co v Stone [1892] 1 QB 599. I’ve also taken a look at CH/2121/2006 and CH/663/2003.

My view is that Wychavon is wrongly decided.

The position in common law and equity arising out of the Privy Council decision in Hart v O’Connor is that a contract with someone lacking capacity to enter such a contract is voidable (not void) by the person lacking capacity if the other party was aware of their lack of capacity.

If the other party was not aware of the person’s lack of capacity, the contract is not voidable on that basis, but only on the usual equitable grounds (fraud, misrepresentation etc,).

Judge Mark’s interpretation of Hart v O’Connor is in error in confusing ‘void’ and ‘voidable’. This leads to the great difficulty evident in the Judge’s efforts in distinguishing CH/2121/2006 and CH/663/2003.

To this extent, I agree with the DoH guidance and the advice the DWP received set out in Alicia’s comment below.]

Alicia’s comment on Nearly Legal reads:

Hello, a non-legal bod here from Housing Options!

So starting point is that thousands of people without mental capacity have tenancies that protect them but not the landlord. Mostly the landlords accept that this is not a major risk in practice (given that most people who lack capacity have full time care and therefore the support to manage a tenancy)and issue tenancies. If the landlord (understandably) insists on a contract that protects both the tenant and landlord then we advise on going through the COP process.

On the issue of HB being paid to people who lack capacity, the following is an extract of a letter from the DWP in May this year that will interest you;

“Our lawyer’s view is that the decision in CH/171/2011 is incorrect in not following the previous decisions in CH/2121/2006 and CH/663/2003.

The correct legal position is, in their view, that set out in the extract from the First-tier Tribunal’s decision in paragraph 5 of the decision in CH/171/2011, i.e. that a party can enter into a legally binding contract to make payments in respect of their occupation of a dwelling without necessarily signing anything and that the father as landlord could bind his claimant daughter to the terms and conditions of the contract, subject to the contract being voidable at the daughter’s option. But the contract was not void from the outset. Therefore there was an agreement/contract at the time of the claim for HB and under it the daughter was liable to make payments in respect of a dwelling in Great Britain which she occupied as her home.

Also, in CH/2121/2006, it was stated that there is no minimum level of understanding below which a contract is void from the outset. At paragraph 8 Judge Mark misinterprets Hart v O’Connor 1985 [AC] 1000, which confirmed that a contract was voidable but not void if it could be shown that the competent contracting party knew of the lack of capacity of the other party. And Judge Mark does not address section 53 of the Law of Property Act 1925 which enables an interest of land to be created by writing signed by the person creating or conveying the interest, i.e.
the landlord. The tenancy agreement, even though only signed by one party, created an immediate interest in land, not a future interest.

The authorities cited above do not indicate that there is a requirement for a Court of Protection appointment or other legal authority to allow a party to make another liable under an agreement where the other party lacks capacity. Judge Mark in paragraph 6 does not cite any authority for his assertion that the parents could only bind the claimant daughter with the authority of the Court of Protection. The appointment of the mother in February 2010 under an order made by the Court of Protection giving her power to act in certain respects on behalf of the claimant is relevant if the mother wished to sign the tenancy agreement on behalf of her daughter.

Therefore lawyers don’t think CH/171/2011 overturns the long held understanding of the law in England and Wales relating to contracts and capacity. ”

To answer your questions, I don’t think Wychavon was rightly decided on the basis that it did not take the MCA into account. It also does not take into account established case principles around void and voidable contracts. We are hoping for a review of this case on that basis.
The alternative arrangements are using the best interest decision making process in the MCA- if there are problems then they will arise at this point and COP can then be used.

It is great that this issue is being raised and discussed- many thanks!

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