This article was authored by Victoria Cross and includes significant input and insight from Joanna Tomlinson, Graduate Solicitor Apprentice in the Wills, Trusts and Probate team.
Attorneys acting under a Lasting Power of Attorney (LPA) must always act in the donor’s best interests. However, questions can arise where an attorney wishes to purchase property belonging to the person they act for. While this may be possible in certain circumstances, such transactions create a conflict of interest and are subject to strict legal requirements. Understanding the rules is essential to protect both the attorney and the donor.
An attorney’s obligations under an LPA
The role of an attorney granted under a valid LPA is extremely important and carries many expectations and obligations. As outlined in the Mental Capacity Act 2005, an attorney or Deputy “must act in the best interests of the Donor or Person at all times”. Therefore, any matter which may be considered “self-dealing”, or a conflict of interest, on the part of the attorney, requires diligent consideration.
When making decisions involving a donor’s assets, an attorney must ensure that their own interests do not conflict with those of the donor. This is especially important when dealing with valuable assets such as property.
What is self-dealing by an attorney?
Self-dealing by an attorney occurs when the attorney uses their fiduciary position to engage in a transaction which benefits them personally, as this creates a direct conflict of interest with the person who granted the LPA, the ‘Donor’.
One common request which creates a clear conflict of interest, is the sale of the Donor’s property to an attorney. Family members may wish to do this for a variety of reasons, for example:
- Freeing up cash held in property for the purpose of paying care home fees
- Keeping the property within the family
- Allowing the attorney to provide care for the Donor at home, without disrupting the Donor’s living arrangements.
Whilst these reasons may be entirely genuine, the transaction must still be approached carefully because of the inherent conflict of interest.
Can an attorney buy a Donor’s property if the donor has capacity?
When considering whether or not an attorney can purchase property from the Donor, one of the key factors to consider is the issue of mental capacity.
If the Donor has capacity, then they are free to sell their property to anyone they wish, and this can include their attorney. Nevertheless, the attorney should keep a clear written record of:
- The Donor’s consent
- The rationale for the sale
- Any professional property valuations relied upon.
Full market value should be paid. If the property is sold below market value, the difference between the agreed sale price and market value would be considered a gift, and subject to the rules of inheritance tax and capital gains tax.
What happens if the Donor lacks capacity?
If the Donor lacks capacity, then the situation becomes far more complex.
The general position is that an attorney cannot sell property to themselves without obtaining authority from the Court of Protection.
The property must be sold to the attorney at or above full market value.
This additional level of scrutiny exists to ensure vulnerable individuals are protected and that attorneys are not placed in a position where they could benefit at the donor’s expense.
When is Court of Protection approval required?
The mechanism for an attorney to do this is by making an application for a “Court of Protection Short Procedure” under Practice Direction 9D.
However, in the event that the property value comprises the majority of the value of the Donors assets, which is often the case, a short procedure is not suitable.
In those circumstances, Practice Direction 9E applies and a full application must be made under Part 9 of the Court of Protection Rules 2017.
What does the Court of Protection consider?
The attorney needs to evidence to the Court of Protection the need or reasons for the sale, supported by a professional valuation of the property.
The court will also want to understand why it should be sold to the attorney and, most importantly, why it is in the Donor’s best interests to sell the property to the attorney specifically instead of placed on the open market.
If an attorney cannot provide satisfactory reasons or evidence, the application will fail.
Key points for attorneys considering a property purchase
While it is possible for an attorney to purchase a Donor’s property, the transaction should be approached with caution.
Where the Donor has capacity, obtaining and recording informed consent is vital. While this helps protect both the attorney and the Donor’s assets and security, it also looks to serve the Donor’s best interests, which are at the very core of the legal principles which govern the role of an attorney.
Seeking legal support on an attorney property transaction
Property transactions involving attorneys and Donors often raise complex issues relating to mental capacity, conflicts of interest and Court of Protection applications. Obtaining specialist legal advice at an early stage can help ensure that any proposed transaction complies with the law and protects the Donor’s interests.
Napthens’ Wills, Trusts and Probate team provides specialist legal advice to help guide you through the process based on your circumstances. Get in touch today via our form to speak with an expert.
FAQs
Yes, an attorney can buy a donor’s property in certain circumstances. However, because the transaction creates a conflict of interest, it must be carefully managed and may require approval from the Court of Protection if the donor lacks capacity.
Yes. If the donor has mental capacity, they may choose to sell their property to their attorney. The attorney should ensure the donor’s consent is clearly recorded and supported by appropriate documentation and valuations.
Where the donor lacks capacity, an attorney will generally need authority from the Court of Protection before purchasing the donor’s property. The court will consider whether the transaction is in the donor’s best interests.
Self-dealing occurs when an attorney uses their position to enter into a transaction that benefits them personally. Because this creates a conflict of interest, such arrangements are subject to close scrutiny.
The property should be sold at or above its full market value. Professional valuations can help demonstrate that the transaction is fair, and in the donor’s best interests.
A sale below market value may be treated as a gift to the attorney. This can create additional legal and tax implications, making professional valuation and legal advice particularly important.
The Court of Protection will consider the reasons for the sale, the property’s value, why the attorney wishes to purchase it, and whether selling to the attorney is in the donor’s best interests rather than selling on the open market.
Victoria Cross | Legal Director
Victoria is a legal director in the wills, trusts and probate team, based in the firm's Fylde Coast office.
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