Rental properties can be a very beneficial investment as the owner can retain the capital equitable value of the property (and hope that the market value will also increase over time) whilst receiving regular rental income with very little effort on their part.
However, if a landlord loses mental capacity, and no Power of Attorney is in place, all sorts of issues can arise that will interfere with the landlord’s property investment and other finances.
1. Frozen bank accounts
The landlord’s sole bank accounts would be frozen by the bank so no rental income can be received or funds taken out to pay for any bills.
Joint bank accounts may also be frozen by the bank to protect the person who has lost mental capacity.
2. Communications with their agent or the tenants.
In order to manage the rental property or properties, the lettings agents will need instructions from the landlord to make decisions including whether or not they want the tenancies to keep running, deal with certain maintenance issues, arrange for insurance, etc. The contract between the agent and landlord may also cease once the landlord loses mental capacity.
Tenants who rent directly from the protected party may also have major issues that they need fixing and paid for quickly, such as broken boilers, leaks, or damaged locks.
3. Issues with the tenancy
The tenants might stray from their tenancy agreement by not keeping the property in proper repair, not paying their rent, causing a nuisance to neighbours, unauthorised subletting, etc.
Typically, a landlord will want to protect their property and investment by enforcing the tenancy to make fixes and invoice the tenant, claim from the tenant’s deposit or even end the tenancy and remove the tenants from the property.
4. Selling the property
As mentioned above, the return on the protected party’s investment is twofold with the capital equity value of the property and also the income received from renting it out. However, common issues can arise that may require the landlord to sell the rental property and receive the sale proceeds instead when a landlord has lost capacity, so as to pay for his/her care.
The protected party would not be able to execute the paperwork to sell the property, whether owned in their sole name or jointly with another, without an attorney or a deputy in a position to act on their behalf.
It is important for attorneys to remember their duties under the Code of Practice of the Mental Capacity Act 2005 which emphasises the key requirement to always act in the protected party’s best interests. This could be selling the protected party’s property to pay for more expensive care fees and reducing the overall estate on death. Decisions like these will need to be made after considering things like the protected party’s finances, quality of living, and testamentary wishes.
What can be done?
Those with foresight will have arranged for a Lasting Power of Attorney (LPA) for Property and Financial Affairs to be created and registered, allowing a seamless transition of continued management of their finances and investments and enabling an attorney or attorneys to step in at the point that they have lost capacity.
When creating the LPA, the protected party could also specify certain preferences and instructions to provide guidance and restrictions to the attorney, perhaps to allow for a friend to continue living at one of the protected party’s properties whilst paying a lower than market value rent.
If there is no LPA in place, someone close to the protected party will need to apply to the Court of Protection to be appointed as deputy to take over the management of the protected party’s property and financial affairs. This is a time-consuming and costly route that would postpone and delay many of the necessary decisions listed above.
How can Nelsons help
Vikky Lai is a Trainee Solicitor at Nelsons.Contact us