3.4 Deferred Payment Agreements

1. What are Deferred Payment Agreements?

Deferred payments provide a way for people to pay for their care without having to sell their home or possessions during their lifetime. By entering into a deferred payment agreement (DPA), the local authority agrees to:

• defer the payment of charges due to it from the adult, for the costs of meeting needs in a care home or supported living accommodation; or
• defer the repayment of a loan to the adult in instalments, to cover the costs of care and support in a care home or supported living accommodation.

A deferred payment agreement can provide additional flexibility for when and how someone pays for their care and support. However, it must be made clear from the outset of any agreement, that the payment for care and support is deferred and not ‘written off’. This means that the costs of the care and support will still have to be repaid by the adult (or a third party on their behalf) at a later date.

The scheme is available throughout England, and local authorities are required to offer deferred payment agreements to people who are eligible for scheme (see Section 2, Qualifying Criteria for Deferred Payment Agreements). Local authorities are also encouraged to offer the scheme more widely to anyone they feel would benefit, even if they do not fully meet the criteria.

Local authorities will need to ensure that adequate security is in place for to cover the amount being deferred, so that they can be confident that the amount deferred will will be repaid in the future.

A deferral can last until death, however many adults choose to use a deferred payment agreement as a ‘bridging loan’ to give them time and flexibility to sell their home when they choose to do so.

2. Qualifying Criteria for Deferred Payment Agreements

Deferred payment agreements are designed to prevent people from being forced to sell their home in their lifetime to meet the cost of their care. Local authorities must offer them to adults who are eligible for the scheme and who are able to provide adequate security (see Section 13, Obtaining Security). Subject to these criteria, they must offer them to both adults who have their needs met by the local authority, and also adults who meet their own needs. Broadly, the criteria are:

1. the adult is ordinarily resident in the local authority area or present in the area but of no settled residence; or ordinarily resident in another local authority area but the local authority has determined that they will or would meet the adult’s care needs under section 19 of the Care Act if asked to do so [see note 1];
2. the adult has needs which are to be met by the provision of care in a care home. This is determined when someone is assessed as having care and support needs [see note 2] which the local authority decides should be met through a care home placement;
3. the adult has less than (or equal to) £23,250 in assets excluding the value of their main or only home (that is in savings and other non-housing assets and housing assets other than their main or only home);
4. the adult’s home is not disregarded [see note 3], for example it is not occupied by a spouse or dependent relative as defined in regulations on charging for care and support (that is someone whose home is taken into account in the local authority financial assessment and so might need to be sold).
5. the adult agrees to the agreement.

Note 1: Where a local authority is meeting an adult’s care and support needs under section 19(2) of the Care Act.

Note 2: When an adult is arranging their own care and support and the local authority has not carried out an assessment, this condition is satisfied when an adult would be assessed as having eligible needs had the local authority carried out such an assessment.

Note 3: Disregarded for the purposes of the financial assessment carried out under section 17 of the Act.

Local authorities are, at their discretion, also permitted to offer deferred payment agreements to adults who do not meet the criteria. When deciding whether an adult who does not meet all of the criteria should be offered a deferred payment, the local authority should consider:

• whether meeting care costs would leave an adult with very few accessible assets (this might include assets which cannot quickly / easily be liquidated or converted to cash);
• if an adult would like to use wealth tied up in their home to fund more than just their core care costs and purchase affordable top ups (see Section 8, How much can be Deferred?);
• whether an adult has any other accessible means to help them meet the cost of their care and support;
• if an adult is narrowly not entitled to a deferred payment agreement given the criteria, for example because they have slightly more than the £23,250 asset threshold. This should include adults who are likely to meet the criteria in the near future.

Local authorities may also, at their discretion, enter into deferred payment agreements with adults whose care and support is provided in supported living accommodation. The local authority should not exercise this discretion unless the adult intends to retain their former home and pay the associated care and accommodation rental costs from their deferred payment. Further details on precisely what qualifies as supported living accommodation are set out in the regulations. Deferred payment agreements cannot be entered into in order to finance mortgage payments on supported living accommodation.

3. Types of Deferred Payment Agreements

Deferred payment agreements can take two forms:

• the local authority pays the care home or supported living accommodation directly and defers the charges due to it from the adult (traditional type);
• the adult pays the care provider for their care, and the local authority loans them the cost of care in instalments less any contributions the adult makes from other sources (loan type).

When considering their approach as to when or whether to offer loan or traditional type deferred payment agreements, local authorities should have regard to their duties under the Care Act, including their duties under the wellbeing principle and their market duties. Local authorities cannot refuse to enter into a loan type deferred payment agreement if the qualifying criteria are met and the adult requests it, as set out in the DPA Regulations 2014 (subject to Section 4, Permission to Refuse a Deferred Payment Agreement).

The local authority must comply with all relevant legislation and act under the guidance.

In all cases, a local authority is only required to enter into a deferred payment agreement to cover the costs of care and support which it considers necessary.

4. Permission to Refuse a Deferred Payment Agreement

A local authority must offer a deferred payment to a person who meets the criteria governing eligibility for deferred payment agreements (DPAs) and who is able to provide adequate security for the debt (obtaining a land registry charge on their property, see Section 13, Obtaining Security), and may offer a deferred payment agreement to others who do not meet the criteria, at their discretion.

However, there are certain circumstances in which a local authority may refuse a request for a deferred payment agreement (‘permission to refuse’), even if the adult is eligible for the scheme. This permission (or discretion) to refuse is intended to provide local authorities with a reasonable safeguard against default or non-repayment of debt.

A local authority may refuse a deferred payment agreement to an adult who is eligible for the scheme if:

1. it is unable to secure a first charge on the adult’s property;
2. the adult is seeking a top up [see note 4];
3. the adult does not agree to the terms and conditions of the agreement, for example a requirement to insure and maintain the property.

Note 4: In these situations, the local authority should still seek to offer a deferred payment agreement but should be guided by the principles in Section 8, How much can be deferred? to decide a maximum amount that is sustainable (or reflects their core care costs without any top-ups) and agree a deferral. The adult can then choose whether they wish to agree.

In any of these circumstances, the local authority should consider whether to offer a deferred payment anyway (for example, if an adult’s property is uninsurable but has a high land value, the local authority may choose to accept charges against this land as security instead).

The main reason in practice for a local authority refusing to defer care home charges is when the amount of the care charges deferred has already reached the equity limit. In such circumstances, the local authority will stop deferring further care home charges. Interest and administration charges may continue to accumulate (see Section 14, Interest Rate and Administration Charge).

5. Circumstances in which Local Authorities may stop Deferring Care Costs

There are also circumstances where a local authority may refuse to defer any more charges for an adult who has an active deferred payment agreement. Local authorities cannot demand repayment in these circumstances, and repayment is still subject to the usual terms of termination, see Section 18 Termination of the Agreement.

The local authority should provide a minimum of 30 days’ advance notice that further deferrals will cease; and should provide the adult with an indication of how their care costs will need to be met in future. Depending on their circumstances, the adult may either receive local authority support in meeting the costs of their care, or may be required to meet their costs from their own income and assets. Local authorities exercising these powers to stop deferring additional amounts should consider their decision to do so in light of the adult’s circumstances and their overarching duties under the wellbeing principle (see Promoting Wellbeing).

Circumstances in which a local authority may refuse to defer any more charges include:

1. when an adult’s total assets fall below the level of the means test (see Charging and Financial Assessment) and the they become eligible for local authority support in paying for their care;
2. where the adult no longer has need for care in a care home (or where appropriate supported living accommodation);
3. if the adult breaches certain predefined terms of their contract (which must be clearly set out in the contract) and the local authority’s attempts to resolve the breach are unsuccessful and the contract has specified that the authority will stop making further payments in such a case;
4. if, under the charging regulations (see Charging and Financial Assessment), the property becomes disregarded for any reason and, as a result, the adult qualifies for local authority support in paying for their care, including but not limited to:
   • where a spouse or dependent relative (as defined in charging regulations) has moved into the property after the agreement has been made, where this means the adult is eligible for local authority support in paying for care and no longer requires a deferred payment agreement;
   • where a relative who was living in the property at the time of the agreement subsequently becomes a dependent relative. The local authority may cease further deferrals at this point.

Local authorities should not exercise these discretionary powers if an adult would, as a result, be unable to pay any tariff income due to the local authority from their non-housing assets.

Local authorities must also cease deferring further amounts when the adult has reached the ‘equity limit’ that they are allowed to defer (see Section 8, How much can be Deferred?), or when they are no longer receiving care and support in either a care home setting or in supported living accommodation. This also applies when the value of the security has dropped and so the equity limit has been reached earlier than expected.

See Case Study: Deferred Payments Arrangements.

6. Information and Advice

See also Information and Advice.

Under the Care Act 2014, local authorities have responsibilities to provide information and advice about care and support, including deferred payment schemes.

In order to be able to make well-informed choices, it is essential that adults can access appropriate information and advice before taking out a deferred payment agreement (DPA). It is also important that adults are kept informed about their DPA throughout the course of the agreement. See also Financial Information and Advice; Section 16, The Local Authority’ Responsibilities whilst the Agreement is in place and Section 18, Termination of the Agreement).

Deferred payment agreements are often made during a time that is demanding for an adult and their loved ones – a period when they are moving into a care home. Adults may need additional support during this period, and the local authority has a role in providing this support, particularly if a move into care is made rapidly and / or at an unexpected point. The local authority must provide information in a way which is clear and easy to understand, and it should be designed to ease the move into a care home for the adult, their carers and their families.

As carers and families often help adults to make decisions about their care and how they pay for it. Local authorities should invite carers and/or families to participate in discussions, and should also provide them with all the information that would otherwise be given to the adult they care for, subject (where required) to the consent of the adult with care and support needs (if they have mental capacity) or someone else with appropriate authorisation. In doing this, they must ensure compliance with the principles of the Mental Capacity Act 2015 and data protection legislation, and duties relating to information and advice (see Information and Advice and also Section 7, Mental Capacity Issues).

If a local authority identifies an adult who may benefit from or be eligible for a DPA or an adult approaches them for information, they should be provided with information about the DPA scheme and how it works. This explanation should, at a minimum:

• set out clearly that the fees are being deferred or delayed and must still be paid back at a later date, for example through the sale of the home (potentially after the adult’s death);
• explain the types of security that a local authority is prepared to accept (see Section 13, Obtaining Security);
• explain that if a home is used as security, the home may need to be sold at a later date to repay the amount due;
• explain that the total amount which can be deferred is governed by an equity limit (see Section 8, How much can be Deferred?) which may change if the value of any security changes;
• explain the circumstances where the local authority may cease to defer further amounts (such as when the adult qualifies for local authority support in paying for their care), and the circumstances where the local authority has to stop deferring further amounts (such as when the adult reaches their equity limit);
• explain how interest will be charged on any amount deferred;
• explain that administrative charges may have to be paid;
• explain what happens on termination of the agreement, how the loan becomes due and the options for repayment;
• explain what happens if the amount due is not repaid;
• set out the qualifying criteria for a DPA;
• detail the requirements that must be met during the course of the DPA;
• explain the implications that a deferred payment agreement may have on their income, their benefit entitlements, and charging for care and support;
• provide an overview of the potential advantages and disadvantages of taking out a DPA, and explain that there are other options for paying for care that should be considered;
• note the existence of the 12 week disregard, which will afford those who qualify for it some additional time to consider their options in paying for care; and
• suggest that adults may want to consider taking independent financial advice, in line with the Care and Support Statutory Guidance (see Charging and Financial Assessment).

Where relevant, local authorities should provide information and advice on DPAs at the earliest appropriate opportunity during the period of the 12 week disregard and should aim to ensure that adults are able to make a smooth transition from the 12 week disregard to the DPA if they opt to enter into an agreement. This means ensuring as far as possible that a DPA is available by the first day of week 13.

Local authorities should advise adults (where appropriate) that they will need to consider how they plan to use, maintain and insure their property if they take out a DPA; that is whether they wish to rent, to prepare for sale, or to leave it vacant for a period.

The local authority should advise if it intends to place conditions on how the property is maintained whilst the DPA is in place (authorities will usually include requirements for adults to maintain and insure their homes in the terms and conditions of a deferred payment agreement; see Section 15, Making the Agreement).

7. Mental Capacity Issues

See also Mental Capacity and Best Interests chapter.

As a deferred payment agreement can take some time to set up and agree, it is important that both the local authority and the adult consider any potential issues around mental capacity.

Where an adult may lack mental capacity to request a deferred payment, a deputy or  a person with a lasting power of attorney (LPA) may request a deferred payment on their behalf. If a family member requests a deferred payment and they do not have the legal power to act on behalf of the adult, the adult and the family member should receive information and advice on how to obtain this, through LPA and deputyships.

Where the local authority is the deputy for an adult, the local authority deputy may apply for deferred payments where this is in the best interests of the adult. Local authorities must not enter into deferred payment agreements with an adult lacking mental capacity unless the proper arrangements are in place.

Local authorities and the adult applying for a deferred payment (if they have mental capacity) may also want to consider any potential issues around future loss of capacity. Information and advice should be provided on options for deputyship, LPA and advocacy (see Independent Advocacy and Independent Mental Capacity Advocate Service). The local authority should confirm what would happen were the adult to lose capacity and not have made their own arrangements. For further advice on capacity and financial arrangements see Annex D: Recovery of Debts.

8. How much can be Deferred?

In principle, an adult should be able to defer the entirety of their care costs; subject to any contribution the local authority is allowed to require from their income. The local authority will need to consider whether the adult can provide adequate security for the deferred payment agreement (see Section 13, Obtaining Security; usually this requirement for ‘adequate security’ will be fulfilled by securing their deferred payment agreement against their property).

If the adult is considering a top up, the local authority should also consider whether the amount or size of the deferral requested is sustainable given the equity available from their chosen form of security. A discussion of sustainability may be helpful in all cases to ensure the adult is aware of how much care their chosen form of security would afford them.

Three factors will dictate how much an adult will defer:

1. The amount of equity an adult has available in their chosen form of security (usually their property / home);
2. The amount an adult is contributing to their care costs from other sources, including income and (where they choose to) any contribution from savings, a financial product or a third party;
3. The total care costs an adult will face, including any top ups they might be seeking.

The local authority should also be satisfied that any top up they agree to is sufficiently sustainable.

9. Equity Limit

When considering the equity available, the local authority must be guided by an ‘equity limit’ for the total amount that can be deferred and ensure that the amount deferred does not rise above this limit. The equity limit will leave some equity remaining in the security used for the DPA. This will both act as a buffer to cover any subsequent interest which continues to accrue, and will provide a small ‘cushion’ in case of variations in value of the security. In most cases, a property will be used as security, so the equity limit will provide a cushion against changes in house prices. When calculating progress towards the equity limit, the local authority must also include any interest or fees to be deferred.

If the adult intends to secure their deferred payment agreement with a property, the local authority must obtain a valuation of the property. Reasonable property valuation costs are included in the list of administration charges that the local authority can pass on to adults, should it  wish to do so. People may request an independent assessment of the property’s value (in addition to the local authority’s valuation). If an independent assessment finds a substantially differing value to the local authority’s valuation, the local authority and the adult should discuss and agree an appropriate valuation prior to proceeding with the agreement.

Where a property is used as security to offer a deferred payment agreement, the equity limit must be set at the value of the property minus 10 percent, minus £14,250 (which is the lower capital limit) and the amount of encumbrance secured on it. An encumbrance is a claim against a property made by a party who is not the property owner (in this case the local authority). This limit provides some protection to local authorities against changes in the value of the security (such as possible house price fluctuations) and the risk that they may not be able to recoup the full amount owed, but also should mean that adults qualify for local authority support if they deplete the equity available in their property (and are consequently not at risk of having to sell their home to pay for care).

When an adult is approaching or reaches the point at which they have deferred 70% of the value of their chosen security, the local authority should review the cost of their care with them, discuss when they might be eligible for any means tested support, discuss the implications for any top up they might currently have, and consider jointly whether a deferred payment agreement continues to be the best way for someone to meet these costs.

Local authorities must not allow additional amounts to be deferred beyond the equity limit, and must refuse to defer care costs beyond this (see Section 4, Permission to Refuse a Deferred Payment Agreement). However, interest can still accrue beyond this point, and administrative charges can still be deferred.

10. Contributing to Care Costs from other Sources

An adult may meet the costs of their care and support from a combination of any of four primary sources:

1. income, including pension income;
2. savings or other assets they might have access to, this might include any contributions from a third party;
3. a financial product designed to pay for long-term care; or
4. a deferred payment agreement which enables them to pay for their care at a later date out of assets (usually their home).

The share of care costs that an adult defers will depend on the amount they will be paying from the other sources.

The local authority may require a contribution towards care costs from an adult’s income, but the adult has a right to retain a proportion of their income (the ‘disposable income allowance’). The disposable income allowance is a fixed amount (up to £144 per week) of an adult’s income which the local authority must allow them to retain (if they want to). The local authority can require the adult to contribute the rest of their income, but must allow them to retain as much of their disposable income allowance as they want to.

An adult may choose to keep less of their income than the disposable income allowance. This might be an advantage to them as they would be contributing more to the costs of their care from their income, and consequently reducing the amount they are deferring (and accruing less debt to their local authority overall). However this must be entirely at the adult’s decision and the local authority must not encourage someone to retain less than the disposable income allowance if the adult wants to retain the full amount.

If an adult decides to rent out their property during the course of their DPA, the local authority should allow them to keep a percentage of any rental income they possess. The local authority may want to consider whether to offer other incentives to adults to encourage rental of properties, though the decision as to whether or not to rent a property must be the adult’s and theirs alone.

An adult may also contribute to their care costs from payments by a third party (including any contributions available from a financial product) or from their savings. Contributing to care costs from another source would be beneficial for an adult as it would reduce the amount they are deferring (and hence reduce their overall debt to the local authority). The local authority must not compel an adult to contribute to their deferral from these sources.

11. Care Costs

Before considering in detail how much they will be deferring, an adult and usually the local authority should have a rough idea of their likely care costs as a result of the care planning process. An adult may wish to vary their care package (or any top ups they may be considering) following consideration of what they could afford with a deferred payment agreement, but should approach the process with an approximate idea of what their care costs are likely to be.

11.1 Top ups

In principle, adults should be able to defer their full care costs including any top ups. At a minimum, when local authorities are required to offer a deferred payment agreement they must allow an adult to defer their ‘core’ care costs. To ensure sustainability of the deferral, the local authority has discretion over the amount adults are permitted to top up. It should consider any request for top ups, but retain discretion over whether or not to agree to a given top up and should accept any top up deemed to be reasonable given considerations of affordability, sustainability and available equity. The local authority should be mindful of the duties set out in relation to top ups and additional costs in the Care and Support and Aftercare (Choice of Accommodation) Regulations 2014.

In essence, the local authority retains a discretion as to whether it agrees to a top up on the basis of affordability, sustainability and available equity.

12. Sustainability

When deciding on the amount to be deferred in a discretionary deferred payment agreement (particularly when considering top ups), both parties should consider a range of factors to satisfy themselves that the arrangement is sustainable including:

• the likely period the adult would want a DPA for (if they intend to use it as a ‘bridging loan’);
• the equity available;
• the sustainability of the adult’s contributions from their savings (if they are making one);
• the flexibility to meet future care needs; and
• the period of time an adult would be able to defer their care costs for.

Deferred payment agreements should prevent adults from having to sell their home in their lifetime to pay for their care. The local authority should discuss with the adult the projected limit of what their equity could cover, given their projected care costs, and how their care costs might change over time.

This may include a discussion of when they are likely to reach any of the income thresholds and may begin to qualify for local authority support in paying for their care.

If the adult requests a top up, it is important that the local authority discusses what might happen to any top up requested if the equity limit is reached, and the adult moves on to local authority paying for their care, and ensures that a written agreement is in place (see Annex A: Choice of Accommodation and Additional Payments). In particular, the local authority should make the adult aware that once they have reached the equity limit, the local authority may not be willing to fund their top up, and they may need to find other ways to pay for it or be prepared for a change in their care package.

The local authority should also consider with the adult the length of time that their contribution to care costs from savings would last, if they intend to contribute to their care costs from their savings. This should include consideration of the impact on care if their savings are depleted (normally this would involve increasing the amount they are deferring).

An important factor in the sustainability of a deferred payment agreement will be any future care and support needs am adult might face. The local authority and the adult concerned should consider allowing flexibility for changes in circumstance, including possible escalation of need, when deciding how much should be deferred. The local authority and the adult should factor any potential changes in circumstances into their considerations of sustainability.

When agreement has been reached between the adult and the local authority as to how much they adult wants to defer, the local authority must ensure this is clearly and unambiguously set out in the deferred payment agreement. See also Section 15, Making the Agreement.

The amount being deferred should be reviewed on a regular basis to ensure the deferred amount does not exceed the equity limit.

While the full costs of an adult’s care may be deferred under an approved agreement, the amount to be deferred depends not only the equity limit but also on other factors such as the amount they must pay weekly towards their care, the payment of top ups as well as the total amount of care costs which they may need to fund. The local authority must be convinced of the sustainability of the arrangement and the deferred payment sum is safely secured against the deferred payment agreement.

13. Obtaining Security

The  local authority must have adequate security in place when entering into a deferred payment agreement. The regulations set out one form of security that the local authority must accept, and also provide wider discretion for other forms of security to be accepted as it sees fit. The local authority should consider whether another type of security could be provided if am adult cannot secure their deferred payment agreement with a charge on a property.

One form of ‘adequate security’ would be the local authority securing a first legal mortgage charge against a property on the Land Register. The local authority must accept a first legal mortgage charge as adequate security and must offer a deferred payment if it is able to secure a first legal mortgage charge on the property.

In cases where an agreement is to be secured with a jointly owned property, the local authority must seek both owners’ consent (and agreement) to a charge being placed on the property. Both owners will need to be signatories to the charge agreement, and the co-owner will need to agree not to object to the sale of the property for the purpose of repaying the debt due to the local authority (following the same procedure as in the case where an adult is the sole owner of a property).

The local authority must obtain similar consent to a charge being created against the property from any other person who has a beneficial interest in the property.

Under the discretionary scheme, the local authority has discretion to decide what else may be considered as ‘adequate security’ for a deferred payment agreement, in cases where a first charge cannot be secured. Other forms of security a local authority may choose to consider include (but are not limited to):

• a third party guarantor – subject to the guarantor having / offering an appropriate form of security;
• a solicitor’s undertaking letter;
• a valuable object such as a painting or other piece of art; or
• an agreement to repay the amount deferred from the proceeds of a life assurance policy.

The local authority can decide in individual cases to refuse a deferred payment agreement if it is not satisfied that adequate security is in place. The security should also be revalued when the amount deferred equals or exceeds 50% of the value of the security to assess any potential change in the value (and consequently the adult’s ‘equity limit’ should be reassessed in turn). After this revaluation, the local authority should revalue the security periodically to monitor any potential further changes in value. If in either case there has been any substantial change the local authority should review the amount being deferred as well, see Section 8, How much can be Deferred).

14. Interest Rate and Administration Charge

The deferred payment agreement scheme is intended to be run on a cost-neutral basis, with the local authority able to recoup the costs associated with deferring fees by charging interest. The local authority can also recover the administrative costs associated with DPAs, including legal and ongoing running costs, via administration charges which can be passed on to the adult. Administration charges and interest can be added on to the total amount deferred as they are accrued, although an adult may request to pay these separately if they choose. The agreement must make clear that all fees deferred, alongside any interest and administrative charges incurred, must be repaid by the adult in full. The local authority must also notify the adult in writing whenever they are liable for an administration charge.

Local authorities can charge interest on any amount deferred, including any administration charge deferred. This is to cover the cost of lending and the risks to local authorities associated with lending, for example the risk of default. Where local authorities charge interest, this must not exceed the maximum amount specified in regulations. A local authority may (but is not required to) charge the nationally-set maximum interest rate. The same interest rate must be charged on all deferred payments within a local authority.

The national maximum interest rate will change every six months on the first of January and July respectively, to track the market gilts rate specified in the most recently published report by the Office of Budget Responsibility (OBR) plus a 0.15% default component (for example, gilt rate 1% plus 0.15% equals a maximum interest rate of 1.15%). The market gilt rate is currently published in the Economic and Fiscal Outlook, which is usually published twice yearly alongside the Budget and Autumn Statement on the OBR website.

The local authority must ensure that any changes to the national maximum interest rate are reflected within their authority and are applied to any agreements they have entered into (unless they are already charging less than the national maximum). Individual agreements must also contain adequate terms and conditions to ensure that the interest rate within any given agreement does not exceed the nationally-set maximum.

The local authority must inform adult before they make the agreement if interest will be charged, what interest rates are currently set at, and when interest rates are likely to change. This is to help adults make well-informed decisions about whether a deferred payment agreement is the best way for them to meet the costs of their care.

The interest charged and added to the deferred amount will be compounded, and the local authority should ensure when making the agreement that adults understand that interest will accrue on a compound basis.

Interest can accrue on the amount deferred even once someone has reached the ‘equity limit’ (see Section 8, How much can be Deferred). It can also accrue after an adult has died up until the point at which the deferred amount is repaid to the local authority. If the local authority cannot recover the debt and seeks to pursue this through the County Court system (see Annex D: Recovery of Debts), the local authority may charge the higher County Court rate of interest.

The local authority must set their administration charge at a reasonable level, and this level must not be more than the actual costs incurred by the local authority in providing the deferred payments scheme, as set out in regulations. Relevant costs may include (but are not limited to) the costs incurred by a local authority whilst:

• registering a legal charge with the Land Registry against the title of the property, including Land Registry search charges and any identity checks required;
• undertaking relevant postage, printing and telecommunications;
• costs of time spent by those providing the service;
• cost of valuation and re-valuation of the property;
• costs for removal of charges against property;
• overheads, including where appropriate (shares of) payroll, audit, management costs, legal service.

The local authority should maintain a publicly available list of administration charges that an adult may be liable to pay. It is good practice to separate charges into a fixed set up fee for deferred payment agreements, reflective of the costs incurred by the local authority in setting up and securing a typical deferred payment agreement, and other reasonable one time fees during the course of the agreement (reflecting actual charges incurred in the course of the agreement).

15. Making the Agreement

Where someone chooses to enter into a deferred payment agreement, the local authority should aim to have the agreement finalised and in place by the end of the 12 week disregard period (where applicable) (see Annex B: Treatment of Capital), or within 12 weeks of the adult approaching the local authority regarding DPAs in other circumstances.

Decisions on an adult’s care and support package, the amount they intend to defer, the security they intend to use and the terms of the agreement should only be taken following discussion between the local authority and the adult. Once agreement in principle has been reached between the local authority and the adult, it is the local authority’s responsibility to put the details agreed into a deferred payment agreement, taking the legal form of a contract between the local authority and the adult.

The local authority should provide a hard copy of the deferred payment agreement to the adult, and they should be provided with reasonable time to read and consider the agreement, including time for them to query any clauses and discuss the agreement further with the local authority.

The agreement must clearly set out all terms, conditions and information necessary to enable the adult to ascertain their rights and obligations under the agreement.

These include:

1. terms to explain how the interest will be calculated and that it will be compounded if it is to be added to the deferred amount;
2. information on administrative costs the adult might be liable for;
3. terms to explain how the adult may exercise their right to terminate the agreement, the process for and consequences of terminating the agreement and specify what notice should be given (see Section 18, Terminating the Agreement);
4. terms to explain the circumstances in which the local authority might refuse to defer further fees (either when it is required to stop deferring, for example if the adult has already deferred up to their ‘equity limit’, or when it has powers to stop deferring, such as when the adult qualifies for local authority support in paying for their care; as set out in Section 8, How much can be Deferred and Section 4, Permission to Refuse a Deferred Payment Agreement);
5. that the local authority will secure their debt either by placing a legal (Land Registry) charge against the property, or by some other means specified;
6. a term requiring the local authority to provide the adult with a written statement every six months and within 28 days of a request from the adult, setting out how much is owed to the authority and the cost of repaying the debt;
7. a term which explains that the maximum amount which may be deferred is the equity limit and that this is likely to vary over time;
8. a term which requires the local authority to give the adult 30 days written notice of the date on which they are likely to reach the equity limit;
9. a term which requires the adult to obtain the consent of the local authority for any person to occupy the property; and
10. an explanation that the local authority will stop deferring its charges and making advances under a loan agreement if the adult no longer receives care and support in a care home or supported living accommodation or if the local authority no longer considers that their needs should be met in such accommodation.

If the agreement is not for the deferral of charges due to the authority (a ‘loan’-style agreement), the agreement must also contain:

1. a term to make clear that the authority will make advances of the loan to the adult in instalments;
2. a term to make clear that the purpose of the loan is to pay for costs of care and support in a care home or supported living accommodation. This should explain:
   1. the consequences of any failure by the adult to pay those costs of care and support; and
   2. that the adult must inform the local authority if they no longer receives or intends to receive care in such accommodation.

The agreement should also stipulate:

1. the value of any accrued or possible administrative charges, and where possible a breakdown of their calculation;
2. the means of redress if either party feels the other has broken the terms of the agreement;
3. the adult’s responsibilities regarding maintenance and insurance of their home;
4. the adult’s responsibility to notify the local authority of any change to their income, home or care and support;
5. the adult’s responsibility to notify the local authority if they intend to rent or sell their property and if someone has gained or may gain a beneficial interest in their property;
6. the local authority’s responsibility to give the adult 30 days written notice if it intends to cease to defer charges (or make loan instalments) under the agreement;
7. a clear explanation of the consequences of taking out a DPA for the adult and their property, including anybody who may reside in the property;
8. the equity limit of their security (as discussed above in the section entitled ‘how much can be deferred’) and the scope for this to change upon revaluation of the security used for the DPA;
9. the process for varying any part of the agreement;
10. the process by which the local authority can require a re-valuation of the adult’s chosen form of security.

The local authority should ensure at a minimum that adults sign or clearly and verifiably affirm they have received adequate information on options for paying for their care, that they understand how the DPA works and understand the agreement they are entering into; and that they have had the opportunity to ask questions about the contract. A term reflecting this should be included in the agreement itself.

The local authority will need to consider whether the deferred payment agreements they enter into are regulated credit agreements to which the Consumer Credit Act 1974 (CCA) and Financial Services and Markets Act 2000 (FSMA) apply.

The scope of ‘regulated credit agreements’ is set out in article 60B of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (RAO). A credit agreement is regulated unless exempt, and there are a number of exemptions in articles 60C to 60H of the RAO. It is likely that most DPAs will fall within such an exemption. If the agreement is regulated, it will need to comply with all applicable requirements of the CCA. In addition, the local authority will need a relevant permission from the Financial Conduct Authority (FCA), and to comply with the FCA’s rules and principles, unless the exclusion in article 72G of the RAO applies (if the credit agreement is within the scope of the Consumer Credit Directive FCA authorisation is required).

All deferred payment agreements will be subject to the Unfair Terms in Consumer Contracts Regulations 1999, so the terms will have to be written in plain, intelligible English and will not be binding if they are unfair to the borrowers. Local authorities will also have to ensure that they do not contravene the Consumer Protection from Unfair Trading Regulations 2008.

Under Section 79 of the Care Act, the local authority may delegate responsibility for deferred payment agreements to another body. This could potentially allow a number of local authorities to combine their collective resources and offer a regional solution tailored to the local conditions and the administrative burden they face. If the local authority chooses to exercise their powers for delegation, the local authority must satisfy itself that the body taking on responsibility for DPAs is complying with all appropriate regulations and guidance (including but not limited to those governing deferred payments). Any and all duties in the Care and Support Statutory Guidance, in the regulations and in the relevant sections of the Care Act apply equally to any delegated authority as they do to local authorities.

16. The Local Authority’s Responsibilities whilst the Agreement is in Place

The local authority must at a minimum provide adults with six monthly written updates of the amount of fees deferred, of interest and administrative charges accrued to date, and of the total amount due and the equity remaining in the home (the ‘equity limit’ discussed in Section 8, How much can be Deferred?). The local authority should also provide the adult with a statement on request within 28 days. It may provide updates on a more frequent basis at their discretion. The update should set out the amount deferred during the previous period, alongside the total amount deferred to date, and should also include a projection of how quickly an adult would deplete all equity remaining in their chosen form of security up to their equity limit.

The local authority should reassess the value of the chosen form of security once the amount deferred exceeds 50% of the security (and periodically thereafter), and adjust the equity limit and review the amount deferred if the value has changed.

17. Contractual Responsibilities on the Adult whilst the Agreement is in Place

The deferred payment agreement sets out various contractual requirements on the adult as well as on the local authority.

If the local authority is exercising its right to require the adult to make a contribution from income, it should include in the legal agreement provisions requiring the adult to notify the local authority of any changes in their income.

The adult must also notify the local authority of changes in their need for care and support, if those changes are ones which will mean that the authority must or is entitled to stop making further instalments under the agreement or to alter the amount of the instalments.

Similarly if the agreement has been entered into on the basis that  the adult’s property has not been disregarded for the purposes of the financial assessment and it is a term of the agreement that the local authority will cease making or reduce the amount of instalments it makes, the agreement should require the adult to inform the authority of changes which mean that the property may be disregarded.

The local authority should include in its contract provisions a requirement for the adult or their representative to ensure that appropriate arrangements are in place to maintain their home whilst they are in care. In particular, that their home is maintained adequately, and require someone to have in place an arrangement for regular maintenance to take place.

The local authority should also require the adult to have adequate insurance for their property. If their home is to be left empty for an extended period of time, the adult will need to ensure their insurance covers this adequately and that any terms required by the insurer are met.

The local authority must include in its contract provisions which require the adult to obtain the its consent before allowing someone to move into the property after the DPA has been made. In these circumstances, the local authority may (if it is reasonable to do so) require written consent from the adult which places the debt owed to the local authority above any beneficial interest another person may accrue in the property.

Local authorities must comply with Unfair Trading Regulations 1999 so the terms should be written in plain common sense English and will not be binding if the terms are unfair to the borrowers. The continuing obligations of the parties that remain in force for the duration of the agreement.

18. Termination of Agreement

A deferred payment agreement can be terminated in three ways:

• at any time by the adult, or someone acting on their behalf, by repaying the full amount due (this can happen during the adult’s lifetime or when the agreement is terminated through the DPA holder’s death);
• when the property (or form of security) is sold and the authority is repaid [see Note 5];
• when the adult dies and the amount is repaid to the local authority from their estate.

Note 5:

In the case that a DPA is agreed on the basis of a form of security other than property, local authorities will need to make provision in the agreement for conclusion of the DPA in the event that the given security is disposed of/comes to fruition.

On termination, the full amount due (including care costs, any interest accrued and any administrative or legal fees charged) must be paid to the local authority.

If the adult decides to sell their home, they should notify the local authority during the sale process. They will be required to pay the amount due to the local authority from the proceeds of the sale, and the local authority will be required to relinquish the charge on their property.

An adult may decide to repay the amount due to the local authority from another source, or a third party may elect to repay the amount due on behalf of the adult. In either case, the local authority should be notified of the adult’s/the third party’s intention in writing, and the local authority must relinquish the charge on the property on receipt of the full amount due.

If the deferred payment is terminated due to the adult’s death, the amount due to the local authority must be either paid out of the estate or paid by a third party. A adult’s family or a third party may wish to settle the debt to the local authority by other means of repayment (as may be the case if the family wanted to avoid having to sell the property or means of security), and the local authority must accept an alternative means of payment in this case, provided this payment covers the full amount due to the local authority.

The executor of the will or administrator of the estate can decide how the amount due is to be paid; either from the adult’s estate (usually via the sale of the house or potentially via a life assurance policy) or from a third party source.

A local authority should wait at least two weeks following the adult’s death before approaching the executor with a full breakdown of the total amount deferred (but a family member or the executor can approach the local authority to resolve the outstanding amount due prior to this point).

Responsibility for arranging for repayment of the amount due (in the case of payment from the estate) falls to the executor of the will.

Interest will continue to accrue on the amount owed to the local authority after the adult’s death and until the amount due to the local authority is repaid in full.

If terminated through an adult’s death, the amount owed to a local authority under a deferred payment agreement falls due 90 days after they have died. After this 90 day period, if a local authority concludes active steps to repay the debt are not being taken, for example if the sale is not progressing and a local authority has actively sought to resolve the situation (or the local authority concludes the executor is wilfully obstructing sale of the property), the local authority may enter into legal proceedings to reclaim the amount due to it. Further information on debt recovery is included at Annex D.

In whichever circumstance an agreement is terminated, the full amount due to the local authority must be repaid to cover all costs accrued under the agreement, and the adult (and / or the third party where appropriate) must be provided with a full breakdown of how the amount due has been calculated. Once the amount has been paid, the local authority should provide the adult with confirmation that the agreement has been concluded, and confirm (where appropriate) that the charge against the property has been removed.