Mental Capacity Act and Tenancy: An open question

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: 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.

About Giles Peaker

Giles Peaker is a solicitor and partner in the Housing and Public Law team at Anthony Gold Solicitors in South London. You can find him on Linkedin and on Twitter. Known as NL round these parts, and still is Nearly Legal on Google +.
Posted in Assured Shorthold tenancy, Community care, Housing law - All.

12 Comments

  1. I’ve not read the cases and this thannkfully is not something that I’ve come across. But just on what you’ve said my thoughts are as follows:

    Wychavon and the other case appear (I assume I must be wrong here) to be cases where the tenancy is entered into after occupation has already arisen. Wychavon appears to suggest that the parents entered into the tenancy with their daughter to cover costs after she had been occupying the property for some time.

    The issue is whether or not the tenancy is a sham.

    I can’t see a problem where someone that lacks capacity enters into a tenancy and then takes up occupation, because there is an action that shows consent to the tenancy.

    Now the legal estate may not vest (although this would be clearer if LPA 1925 1 (6) states infants and people lacking capacity). This would rise questions of where the legal estate has gone.

    The person lacking capacity would therefore have the benefit of an equitiable tenancy, if the rules of equity allow.

    In short where the landlord knew the tenant lacked capacity but allowed them into the property and they paid rent. Then equity would have to step in and create a trust to sort it all out. Probably to the detriment of the landlord but that’s because the landlord was the only one capable of knowing the risks.

    • Chris

      Wychavon is not about whether the tenancy was a sham – I agree it would be easier if it was. In fact the closing paras of Wychavon suggest that now the mother had Court of protection authority it may be possible for a fresh HB application to be made, with the mother having entered the tenancy on the daughter’s behalf.

      Also taking up occupation can’t be a ‘consent to the tenancy’ where the person taking up occupation doesn’t have the capacity to consent, although that may be a voidable rather than void position. But the probelm with the ratio of Wychavon is that a tenancy entered where LL knows that T lacks capacity to enter it is void, not voidable. So HB won’t pay. The trust position won’t assist.

      The trust position was what I was considering – along the lines of Alexander-David v LB Hammersmith & Fulham, but that doesn’t get round either stopping the tenancy being as AST or the housing benefit difficulty.

    • I was thinking of the same case. Having had cause to use it recently.

      Glad to see an answer. I can squirrel away the information now. So that if it does cross my desk at some point I’ll remember it.

      Just like I did for the blog post on Alexander-David v LB Hammersmith & Fulham.

      Although I do think it might be some form of mental health problem to be able to recall things, that have no relevance at the time, some years later when a client states I am 17 2 minutes before going into a hearing.

  2. A contract entered into by a person whose affairs are protected by the court under the MCA is voidable at the instance of such a party -although the contract does bind the other party (Re Walker [1905] 1 Ch 60. The justification for this seems to be that where the persons affairs are subject to the control of the court, an attempted disposition does not bind him, since it would interfere with the courts control over the property. The same would apply to those with a lasting power of attorney.

    In all other cases mental capacity is not a ground for the setting aside of a contract unless the incapacity is known to the other party to the contract (Imperial Loan Co v Stone [1892] 1 QB 599. Where the incapacity is not known to the other party, the contract cannot be set aside unless an unconscionable bargain. The justification for this seems to be the existence of the equitable jurisdiction to set aside ‘an improvident bargain made with a poor and ignorant person’ (Cresswell v Potter [1978] 1 WLR 255.

    So in answer to your questions:

    1) Wychavon was correctly decided.

    2) Possibly via the Human Rights Act. The Equality & Human Rights Commission have published Human Rights at Home: guidance for social housing providers. The Commission refers to housing providers who makes accommodation available to persons without the mental capacity to enter into a tenancy but does not confer tenancy-equivalent benefits and rights on those persons. The guidance says that the provider could instead “grant tenancies to others to hold on trust for the residents”. So the answer would seem to be a request to the local housing authority to provide accommodation to be held on Trust by another.

    • HAH
      Thanks – that confirms what I suspected but was too knackered to check on Wychavon and void/voidable.

      Thanks also for pointing to the EHRC guidance. I fear that this is of little help, though. While a properly set up trust would solve the problems, including HB paid to the legal tenant, this is simply not an option for private sector. LA assistance is not going to be enough.

    • HAH – After looking into it, and reviewing Hart v O’Connor and also Imperial Loan, Wychavon is wrong. The authorities hold that a contract is voidable by the person without capacity if the other party was aware of their lack of capacity. But Wychavon finds that the contract is void ab initio in these circumstances. This is not right. A voidable tenancy would still attract housing benefit until voided.

  3. 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!

    • Alicia

      Thanks for this. I’ve come to the same conclusion and added my view to the post above. I don’t think s.53 LPA is necessary to consider, given that Judge Mark does identify quite rightly that there is no need for a tenancy agreement to be in writing.

  4. NL

    An agreement not enforceable in law is void. Such an agreement is void ab initio which means they are unenforceble from the time it was made. An agreement which is enforceable by law at the option of one or more of the parties but not of the option of the other is voidable. The latter applies if the landlord was aware of the situation but not otherwise. It is a question of who knows what, not that Wychavon was wrongly decided.

    • But, and this is the point, an agreement with someone lacking mental capacity is not void, whether the other party knew or not. If the other party knew, it is voidable, not void. If the other party didn’t, the agreement stands (subject to the usual equitable principles that apply to any contract). Wychavon is wrong because the agreement could not, in common law, be void. That is not a question of fact, but of law.

  5. In Hart v O’Connor [1985] Lord Brightman said the validity of a contract entered into by a person who is ostensibly sane is to be judged by the same standards as a contract by a person of sound mind, and is not voidable by him or his representatives by reason of “unfairness” unless such unfairness amounts to equitable fraud which would have enabled the complaining party to avoid the contract even if he had been sane. That is different to the case of a person who plainly lacks capacity and that fact is drawn to the attention of the contracting parties. In Hart Mr O’Connor was not of a sufficient mental capacity to enable him to enter into such an agreement, but this was not known to Mr. Hart. It was therefore not void.

    Contrast that with Whychavon where at the bottom of the tenancy agreement there was written, “[the Claimant] is profoundly disabled and cannot communicate at all.” The Landlord plainly knew of the disability. The position in Imperial Loan Co Ltd v Stone still represents the true position under common law. In other words, an agreement is void on the basis of the mental disability, if it can be shown that the disability was apparent to the other party at the time of the contract.

    The Court of Protection will have to grapple with this question sooner or later.

    • Imperial Loan does not say void. It says can be avoided. The distinction is between void and voidable. As Hart v O’Connor sets out, the position is that the contract is voidable – at the election of the party lacking capacity – if the other party knew of the lack of capacity when entering. Where Wychavon is wrong is to take Hart (and Imperial Loan) as meaning that the contract is void, ab initio, if the other person knew of the lack of capacity. This is simply not the case. A voidable contract runs, and is enforceable, unless and until voided by the party lacking capacity. Thus, in Wychavon, housing benefit would have been payable.

      It isn’t a Court of Protection issue, I think. The Court of Protection can give authority for a tenancy to be entered into making the tenancy wholly valid. The CoP may need to address the processes and fees involved. But the voidable contract issue is a common law question and well beyond the scope of the CoP to address.

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