This is a chapter from A Practitioner's Guide to Powers of Attorney (Bloomsbury Professional), which is a practical, user-friendly and easy to read guide to all forms of powers of attorney, including ordinary powers of attorney, lasting powers of attorney and enduring powers of attorney. Providing a detailed overview of the subject as a whole, it also gives in-depth advice on more specific and complex areas, including execution of documents and protection of third parties.
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Table of Contents
1.1 A power of attorney is a deed by which a person confers power on another to act on behalf of the person granting the power. The person granting the power is called the donor, grantor, or principal, and the person on whom the power is conferred is called the donee, grantee, agent, or attorney. The power can be general or limited. If it is general, the donee, grantee, agent or attorney will be authorised to do anything which the donor, grantor, or principal could have lawfully done; if it is limited, the donee, grantee, agent, or attorney may have authority only to deal with one particular transaction, for example the sale of a house. The power may also be limited in time; it may expressly state that it is to remain in force for a specified period, or whilst the donor is abroad. As soon as the specified period expires, or the donor returns to the United Kingdom, the power will terminate.
For the sake of simplicity, in this book the person granting the power is usually called the donor, and the person to whom the power is granted is usually called the donee or attorney.
1.2 It is always open to the donor of a power to specify in detail the powers conferred on the attorney. These can merely authorise the attorney to enter into one transaction, or they can be so wide as to permit the attorney to do anything the donor or principal could have done. In the latter situation, before 1971 the power was usually very long (for example, see Midland Bank Ltd v Reckitt [1933] AC 1).
Since the Powers of Attorney Act 1971, if a donor or principal wants to confer a general authority on the attorney, it has not been necessary to set out at great length the powers conferred on the attorney. Instead, use can be made of the general form of attorney set out in Sch 1 to the Act, which gives the attorney authority to do any act which the donor could have lawfully done (Powers of Attorney Act 1971, s 10). The donee under this power will be able to operate bank or building society accounts on behalf of the donor, sell any house or other property belonging to the donor, and invest money on behalf of the donor. This power is reproduced in Appendix 3 below, and it should be used if the donor or principal intends to grant a general power.
Frequently, powers of attorney are granted by elderly donors, perhaps when about to enter care homes, to adult children to enable the children to operate bank and building society accounts and deal with investments on behalf of their parents. The basic rule is that a power of attorney is revoked by the supervening mental incapacity of the donor, so that, if a parent who has given a child a power of attorney becomes incapable of managing his affairs, the power of attorney terminates, and the child cannot continue to act under the power. In this situation, the only way of dealing with the assets of the parent was to apply to the Court of Protection under the Mental Health Act 1983. Usually, the Court of Protection appointed a relative to be a receiver to manage the assets of the patient. The disadvantages of applications of this nature were the procedural requirements, costs and the fees.
The Enduring Powers of Attorney Act 1985 ('EPAA 1985') authorised the creation of enduring powers of attorney which are not revoked by the subsequent mental incapacity of the donor. Enduring powers of attorney only gave the attorney power to make decisions about the property of the donor.
It is not possible to create enduring powers of attorney after 1 October 2007. Instead, it is possible to create lasting powers of attorney. The donor of a lasting power will be able to authorise the attorney not only to make decisions about the property of the donor, but also to make decisions about the personal welfare of the donor. The Mental Capacity Act 2005 introduced lasting powers, which are not revoked if the donor becomes mentally incapable.
It should be noted that enduring powers of attorney granted before 1 October 2007 remain valid.
1.3 Powers of attorney are frequently granted when a person is about to go abroad for a prolonged period and may be difficult to contact. They are also granted in respect of short absences abroad, for example a holiday, if it is likely that action will have to be taken on behalf of the donor whilst he is away.
Elderly persons also appoint attorneys so that they do not have to deal with their business affairs. It is particularly appropriate for those persons who are confined to the house or are in care, or who cannot get out to visit the bank or otherwise attend to their affairs. It is also appropriate for elderly persons to grant lasting powers of attorney, which will not be revoked by their subsequent mental incapacity.
Younger persons may also grant lasting powers of attorney. This may be because they are concerned about what will happen if they are rendered mentally incapable by an accident or illness, in which circumstances it might be difficult for a partner to access money in bank or building society accounts, or deal with other assets without application to the Court of Protection.
In addition, a power of attorney may be incorporated into other transactions. In a mortgage, the mortgagor or borrower may give the mortgagee or lender a power of attorney to enable the mortgagee or lender to sell the property, should the mortgagor or borrower default. A power of attorney is also often found in partnership agreements; the partners appoint each other their attorney so as to enable them to deal with partnership matters on behalf of each other. This power is particularly useful if a partner has left the partnership, perhaps because he has been expelled, and is not prepared to co-operate with the other partners. He may refuse to sign documents connected with the partnership; the continuing partners can sign the documents on his behalf if they have a power of attorney. Powers of attorney are also used in conveyancing transactions, for example where a house is purchased by a home relocation company.
1.4 This is dealt with in more detail in Chapters 3 and 4.
With regard to enduring powers of attorney, in outline, the donor granted a general or limited power of attorney to the donee or attorney, using a prescribed form. The power was operated as an ordinary power, until the donee or attorney had reason to believe that the donor was or was becoming mentally incapable, whereupon the attorney had to make application to the court for the registration of the power. Notice of application had to be given to specified relatives, who could object to the registration on various grounds. Once the power was registered, the attorney continued to act, but the court had various supervisory powers. Thus, an enduring power was not revoked by the supervening mental incapacity of the donor, although an ordinary power would be revoked in that situation.
Enduring powers of attorney can no longer be created. They were replaced by lasting powers of attorney which give the attorney power to make decisions about the property of the donor, or to make decisions about the medical treatment of the donor, or both. The lasting power must be registered before it can be used.
1.5 Frequently, a donor will appoint one person to act as attorney. However, the donor does not have to appoint a sole attorney; he can appoint two or more persons to act as attorney.
If two or more persons are appointed, they will either have a joint power, or a joint and several power. The instrument creating the power should state which power is being created and, in the case of an enduring power, had to clearly state, because there is a difference between joint authority and joint and several authority.
If it is a joint power, all the attorneys must join in making any decision, so that one joint attorney cannot bind the others. If one joint attorney dies, the power terminates, unless it is a lasting power, and a replacement attorney has been appointed. On the other hand, if it is a joint and several power, all the attorneys do not have to join in making decisions, and one can bind the others. If one joint and several attorney dies, the others can continue to act.
The donor of a lasting power of attorney can specify if it is to be a joint power or a joint and several power; if the power does not specify whether it is to be a joint or a joint and several power, then it is assumed that it is a joint power (Mental Capacity Act 2005, s 10(5)). The original prescribed forms for lasting powers of attorney talk about acting together, a joint appointment, or acting together and independently, a joint and several appointment.
1.6 A donor of a power should always appoint as donee or attorney a person he can trust. However, there may be situations where it will cause offence if a person the donor distrusts is not appointed the attorney. For example, if there are several children living near a parent, it may cause offence if all of them are not appointed attorneys, even though the parent may distrust one of them. One way round this problem is for the donor to appoint joint attorneys so that they can act as a check on each other, as a joint attorney will not be able to deal with the property or money of the donor without the consent of the other attorney. The disadvantage of appointing joint attorneys is that, if one dies, then the power automatically terminates. Note that it is possible to appoint replacement attorneys with a lasting power.
PD Lewis in The Law Society's Gazette (26 November 1986 at page 3568), when discussing enduring powers of attorney, poses the problem of a donor who has two children, neither of whom he wishes to alienate, but does not want to entrust sole management of his affairs to one. He suggests that the donor could grant two enduring powers: one appointing the donor's solicitor and one child, and the other appointing the solicitor again and the other child.
Joint and several powers should be conferred when it is expected that one or more of the attorneys will sometimes be unable to act, for example because he goes abroad frequently, or because one or more of the attorneys is elderly and may predecease the donor.
There is doubt as to whether a joint or joint and several appointment of three persons, on the basis that only two of them could act, is valid. This is discussed in more detail in Chapters 3 and 4.
1.7 If it is intended that the power should continue despite the supervening incapacity of the donor of the power, a lasting power must be granted. However, if there is little possibility of the donor becoming mentally incapable, so that a lasting power of attorney is not appropriate, it may be that a power of attorney is not essential, and that the donee can do all that is required on behalf of the donor under a written or even an oral authority.
The grant of a power of attorney creates an agency relationship between the donor and the donee of the power. The basic rule is that no formalities are required for the appointment of the agent, and an oral appointment can be effective, although it is highly desirable that any appointment should be in writing in order to prevent disputes later, and to protect the donee against allegations that he has exceeded his authority. However, there are a few transactions where a power of attorney will be required. These are considered next.
1.8 Certain transactions require a deed for their validity. Examples of transactions requiring a deed are:
(i) a conveyance of land (this must be made by deed under Law of Property Act 1925, s 52(1) and under s 205(1)(ii)). 'Conveyance' is defined as including a mortgage, charge, and a lease;
(ii) leases for more than three years (Law of Property Act 1925, s 54(2));
(iii) transfers of registered land (Land Registration Act 2002 and Land Registration Rules 2003, Sch 9).
The Law of Property (Miscellaneous Provisions) Act 1989 ('the 1989 Act'), the relevant provisions of which came into force on 31 July 1990, altered the rules about deeds. Section 1(3) (as amended by SI 2005/1906) provides that a deed must be signed by the person making it, or alternatively it can be signed by an agent at the direction and in the presence of the maker of the deed and in the presence of two witnesses who each attest the signature, and it is delivered as a deed.
Section 1(1)(c) of the 1989 Act abolished any rule of law which required that a deed must be used to confer authority on another person to deliver an instrument as a deed.
The effect of these provisions is that no authority by deed is necessary for an agent to sign a deed in the presence of the maker of the deed, or to deliver it whether or not the maker is present. However, a deed will normally have to be used to confer authority on the agent to sign a deed in the absence of the principal. A power of attorney is therefore essential if a donor is going abroad and wishes to confer authority on an agent to enter into a transaction which will require the execution of a deed whilst the donor is abroad.
1.9 Under s 2(1) of the 1989 Act, a contract for the sale or other disposition of an interest in land can only be made in writing, and under s 2(2) the contract must be signed by or on behalf of each party to the contract. However, there is no requirement of writing for the appointment of an agent to sign such a contract.
Section 1 of the Stock Transfer Act 1963 requires a transfer of shares to be executed by the transferor. Paragraph 23 of Table A in the Companies (Tables A to F) Regulations 1985 (SI 1985/805) states that a transfer must be in any usual form or other form which the directors may approve, and must be executed by or on behalf of the transferor. In the Companies (Model Articles) Regulations 2008, Article 63 of the Model Articles for public companies and Article 26 of the Model Articles for private companies limited by shares have similar provisions. There does not appear to be any requirement that a person executing a transfer on behalf of another should be authorised to do so by a power of attorney, but it is clearly desirable that this should be done in order to take advantage of the protection offered by ss 5 and 6 of the Powers of Attorney Act 1971. These sections are discussed in Chapter 11.
If the only assets of the prospective donor are money in a bank or building society account, the donee can be authorised in writing to operate the account, and most banks and building societies have a standard form of authority for this purpose. However, any such authority will be revoked by the subsequent mental incapacity of the donor, although most banks and building societies do not make enquiry about the mental state of the donor.
It is also possible for a person to be appointed as an agent or appointee in order to collect social security benefits for another person.
Thus, an oral or written authority will often suffice, apart from the situations where the agent will be required to sign a deed in the absence of the principal. However, if it is intended that the authority should continue after the donor has become mentally incapable of managing his own affairs, a lasting power of attorney should be granted.
1.10 The question of capacity is discussed in Chapter 6. In most cases, it will be appropriate to appoint from amongst the following:
(a) relatives;
(b) friends;
(c) solicitors;
(d) accountants; and
(e) other persons offering will-drafting services.
The donor and the donee are often related. A person going abroad for a prolonged period may wish to appoint his spouse, or a parent, or a child as his attorney; an elderly donee may wish to appoint a child or a friend as attorney. In these situations the attorney will frequently not expect to be paid for the work that he does in pursuance of the power. However, if there is no suitable relative or friend, a solicitor or accountant or other professional person may be appointed, and they will expect to be paid for the work they do as attorneys.
As will be seen later, there are few restrictions on who can be appointed attorney, but he should be a person whom the donor considers he can trust. There is always the risk that relatives or friends may use the power to benefit themselves rather than the donor of the power, and, although they can be made to account for any misuse of money or property belonging to the donor, such right is of little use if the donee has no assets. If professional persons such as solicitors or accountants are appointed, it is unlikely that the power will be exercised otherwise than for the benefit of the donor. However, as mentioned earlier, professional persons will expect to be paid for their services, and, if the assets of the donor are not very valuable, the expense may not be justified.
The Public Trustee will not accept an appointment as attorney (PD Lewis, The Law Society's Gazette (28 October 1987 at page 3083).
(The Public Trustee is an office created by the Public Trustee Act 1906. Fees are chargeable for the services provided by the Trustee, and he is not bound to act if appointed. However, he cannot refuse to act on the ground that the estate is too small.)
A power of attorney may be desirable if a person is about to go abroad, or is elderly.
A power of attorney can be general or limited in time or to a particular transaction. Lasting powers can confer authority on the attorney to make decisions about personal welfare.
If a donor of a power of attorney is elderly, he should grant a lasting power, which will not be revoked by the supervening mental incapacity of the donor.
More than one person can be appointed attorney; the authority conferred can be joint or joint and several.
A power of attorney may not be necessary, as an agent can be authorised orally or in writing to carry out many transactions.