23 July 1993

Dear Colleague

COMMUNITY CARE: HEALTH AND SOCIAL SERVICES AND SOCIAL SECURITY ADJUDICATION ACT 1983 (HASSASSA)

SECTIONS 21-24: ORDERS AND GUIDANCE

Summary

1. This Circular advises local authorities of the Order commencing Sections 21 to 24 of HASSASSA and also of the Charging Orders (Residential Accommodation) (Scotland) Order 1993 (SI 1993 No1516), made under Section 23 of the 1983 Act and which came into force on 16 July. The Annex provides guidance on Sections 21, 23 and 24 of HASSASSA (Section 22 has England and Wales application only), which came into effect on 12 April.

Previous Circulars

2. Circular SWSG13/92, and subsequent amendments detailed in SWSG13/93, issued to all recipients of this Circular and certain other interested organisations regarding the new charging arrangements for residential care and nursing homes also refer. Circular SWSG6/83 gave details about the provisions of the 1983 Act.

Background

3. Sections 21 to 24 of the HASSASSA give local authorities power to recover charges for residential accommodation from assets, transferred by the resident of accommodation provided by a local authority under the Social Work (Scotland) Act 1968 or Section 7 of the Mental Health (Scotland) Act 1984, to a third party in order to secure debt arising from non-payment of the charge over a resident’s interest in land. The provisions on recovery from transferred assets apply where this is done knowingly and with the intention of avoiding charges for the accommodation and where the consideration for the transfer is less than the value of the asset, or there is no consideration for the transfer.

Section 21 provides for the recovery of debt in respect of assets, namely, cash or any other asset which falls to be taken into account for the purpose of the financial assessment of ability to pay under Section 22 of the National Assistance Act 1948 which have been transferred to a third party by a resident after admission to residential accommodation or in the 6 months preceding admission in order to avoid or reduce the assessed charge.

Section 23 The Charging Order (Residential Accommodation) (Scotland) Order provides the mechanism for a local authority to create a security over a resident’s interest in land in Scotland by making and recording or registering a charging order over a resident’s interest in that land in order to secure a debt arising from unpaid residential accommodation charges. In terms of the Order, the provisions of Part II of the Conveyancing and Feudal Reform (Scotland) Act 1970 shall, subject to certain expectations and modifications specified at Articles 5(2) and 5(3) of the Order respectively, apply generally to a charging order as it if were a standard security.

Section 24 This was amended by Section 45(3) of the NHS and Community Care Act and provides for interest at such a reasonable rate as the local authority may determine, or as the Secretary of State may direct, to be charged from the day after a resident’s death on any sum secured on an interest in property in Scotland, England and Wales.

4. Amendments incorporated in Sections 21, 23 and 24 of HASSASSA by the NHS and Community Care Act 1990 give the Secretary of State powers to issue Directions about the manner in which local authorities exercise these powers, including the rate of interest that may be charged. There are no proposals to issue Directions at present.

5. Copies of the legislation mentioned in this Circular can be obtained from HMSO, 71 Lothian Road, Edinburgh.

Contact Point

6. Please direct any enquiries concerning this circular to Mr Trevor Hall, Social Work Services Group, Room 44, James Craig Walk, Edinburgh EH1 3BA

(telephone 0131 244 5455).

Yours faithfully

GAVIN ANDERSON

ANNEX

CONTENTS

1. Introduction

2. Section 21

2.1 Deprivation of Assets

2.2 Assets to be Considered

2.3 Transfer of Liability

3. Section 23

3.1 The Charging Orders (Residential Accommodation) (Scotland) Order

3.1.1 Placing a charge on land

3.1.2 Ranking (priority) of Charging Order: Section 13 of the 1970 Act

3.1.3 Calling up a Charging Order

4. Section 24

4.1 Charging Interest

Notes

1. "Section" references at various paragraphs of the Guidance relate to the Health and Social Services and Social Security Act 1983.

2. Reference to the 1970 Act means the Conveyancing and Feudal Reform (Scotland) Act 1970.

HEALTH AND SOCIAL SERVICES

AND SOCIAL SECURITY ADJUDICATION’S ACT 1983 (HASSASSA)

Introduction

1. Three Sections of this Act are relevant to the recovery of charges for residential accommodation provided by a local authority under the Social Work (Scotland) Act 1968 or Section 7 of the Mental Health (Scotland) Act 1984.

- Section 21

- Section 23

- Section 24

Sections 21 and 24 also apply in England and Wales. Section 22 applies in England and Wales only.

Section 21

2. This Section applies where a resident has transferred an asset to a third party knowingly and with the intention of avoiding or reducing his liability for charges for accommodation. It provides that the third party shall be liable for the difference between the amount assessed as due to be paid by the resident and the amount which the LA receive from him for his accommodation.

Deprivation of assets

2.1 In order for Section 21 to apply the LA must have decided that the resident has knowingly and with the intention of avoiding charges transferred an asset to someone else with the intention of avoiding charges for accommodation. The transfer must have taken place no more than 6 months before admission to residential accommodation (or under Section 21(3) 6 months before resuming occupation in the case of a resident who has been absent from such accommodation). Also, the resident must either have received no consideration for the transfer or any consideration must have been less than the value of the asset. This paragraph of the guidance should be read in conjunction with paragraphs 6056 and 6066 of the guidance on the National Assistance (Assessment of Resources) Regulations 1992.

Section 21(1)

Examples

A resident transferred his house to his daughter with the intention of avoiding a charge for accommodation and the daughter gave the father nothing in return. The powers of Section 21 of HASSASSA can be used to make the daughter liable for the father’s charges.

A resident sold his right to receive an income of £5,000 a year for a single payment of £200 with the intention of avoiding or reducing the charge for accommodation. The return for the transfer is less than the value of the asset and liability under Section 21 of HASSASSA arises.

Assets to be considered

2.2 The LA should only consider using these powers if the asset disposed of is one which would have been taken into account for the purposes of assessing the charge.

Section 21(2)

2.3 Other than cash, the value of any asset shall be the amount which would have been realised had the asset been sold at the time of transfer on the open market by a willing seller. The value should take into account any debts secured on the asset and a reasonable amount in respect of the expenses of sale. The term "reasonable amount" is not defined in the legislation. It would therefore be for authorities to make a judgement as to what constitutes a reasonable amount in respect of expenses arising from the sale of a particular asset.

Section 21(6) and (7)

Transfer of liability

2.4 The amount for which the person who has received the asset should be held liable should be restricted to the benefit accruing to him from the transfer.

Section 21(5)

For example

A resident transferred his former home, valued at £65,000, to his son with the intention of avoiding a charge for accommodation. After the expenses of sale and the clearing of a debt secured on the property the value of the property is assessed as £40,000. The son can be held liable for charges up to a total of £40,000.

2.5 If the asset has been transferred to more than one person, each person can be held liable in proportion to the benefit accruing to that person from the transfer.

Section 21(4)

2.6 The amount of liability to be transferred to the third party should be the difference between the charge assessed and the amount actually received by the authority from the resident.

Section 23

3. This Section applies where a resident fails to pay an assessed charge for accommodation and has a beneficial interest (entitlement to receive profits or proceeds) in land. It enables a local authority to secure a debt in this regard in terms considered at paragraph 3.3.1 to 3.5.2.

The Charging Orders (Residential Accommodation) (Scotland) Order

3.1 In terms of Section 23(3) of HASSASSA, the effect of a Charging Order made and recorded in the Register of Sasines or registered in the Land Register as appropriate, is to secure for the local authority in Scotland (as well as England and Wales) any debt due or to become due, together with any interest in terms of Section 24 of HASSASSA, in respect of unpaid residential accommodation charges against the debtor’s interest in land in Scotland. This statutory effect is reflected in the form of the Charging Order prescribed in the Schedule to the Order.

3.2 In accordance with HASSASSA the provisions of Part II of the Conveyancing and Feudal Reform (Scotland) Act 1970 shall apply to a Charging Order as if it was a Standard Security in a form presented in Schedule 2 to the 1970 Act, subject to the exceptions specified in Article 5(2) and modifications specified at 5(3) of the 1993 Order.

Placing a charge on land

3.3.1 If a resident has more than one interest in land the local authority can decide which piece to place a charge on.

Section 23(2)

3.3.2 The amount of the debt due, and any interest thereon, secured under a Charging Order are as described in Article 4 of the Order and must be certified by the Director of Finance of the authority in whose favour an Order is made. He may also substitute an amended certificate on cause shown.

Ranking (Priority) of Charging Order: Section 13 of the 1970 Act

3.4.1 On recording or registering, a Charging Order will rank after a security in respect of the same interest in land recorded or registered at an earlier date, but will rank ahead of any security over the same interest in land recorded or registered subsequent to it.

3.4.2 Section 13(1) of the 1970 Act makes provision in relation to the preference in ranking of the security of a creditor in a Standard Security duly recorded, where that creditor receives notice of the creation of a subsequent security over the same interest in land or any part of the subsequent assignation or conveyance of that interest, being a security, assignation or conveyance so recorded.

3.4.3 In the circumstances, it is provided that the preference in ranking of the security of that creditor shall be restricted to security for his present advances and future advances which he may be required to make under the contract to which the security relates, and interest present or future due thereon, and any expenses or outlays in connection with the exercise of any power conferred on any creditor by the deed expressing the existing security.

3.4.4 For these purposes, Section 13(2)(a) provides that the creditor is an existing Standard Security shall not be held to have had any notice by reason only of the subsequent recording of the relevant deed in the Register of Sasines.

3.4.5 Where a local authority makes and records or registers a Charging Order, therefore, and there is already an existing Standard Security registered or recorded in respect of the same interest in land, to obtain the benefit of the provision of Section 13(1) the local authority may wish to give notice of the creation of the Charging Order to the creditor in the existing security. This will ensure that the preference in ranking of that Standard Security is restricted as described as security for his present advances, or future advances which he may be required to make under the relevant contract, and interest and expenses as described.

3.4.6 Where a Standard Security is recorded over an interest in land against which a Charging Order has already been recorded the securities would rank in accordance with their dates of recording, in the absence of any other agreement.

Calling up a Charging Order

3.5.1 A local authority may only call up a Charging Order once the resident has died or, if he is still alive, in the event of:

a. the resident’s insolvency;

b. the sale or transfer of the interest in land;

c. the calling up of a Standard Security by another creditor who has recorded or registered a security over the same interest.

3.5.2 The above arrangements constitute a proviso to Section 19(1) of the 1970 Act applied by Article 5(3)(a) of the Order to the provisions of Section 19 with regard to the calling up of a Standard Security.

3.5.3 Authorities should not that Section 14 of the 1970 Act with regard to the assignation transfer of a Standard Security to a third party does not apply to a Charging Order made under Section 23 of HASSASSA.

Discharging a Charging Order

Where the debt has been redeemed on payment, the Charging Order should be discharged. The form for this is prescribed in Form 2 to the Schedule of the Order.

Section 24

4. This Section applies where a resident, over whose interest in a property a charge has been created, dies. Section 24(2) was amended by Section 45(3) of the NHS and Community Care Act 1990 which empowers a local authority to charge a reasonable amount as it may determine. It also give the Secretary of State the power to direct in this regard.

Charging interest

4.1 Where the LA has created a charge over property, they can charge interest on the sum, at a reasonable rate, from the day after the resident for whom they have provided accommodation dies.

Example

A resident owned a property valued at £60,000; he refused to sell that property and, as a result, was unable to pay the £200 per week which was the standard charge. He was in the accommodation for 20 weeks and the LA placed a charge for £4,000 on the property. The resident died on 01/11/93. The LA can charge interest on the £4,000 from 02/11/93 to the date on which the property is sold and the debt is paid.