Just as George Osborne backs huge expansion of the wretched state of retirement housing provision in this country, up pops the Law Commissioner Stephen Lewis to point out one aspect that is very wrong with it: exit fees, or now called event fees.
And he wants to hear your views on the subject before January 29 2016.
You can also see Stephen Lewis in a forthright, short video:
These are still a serious issue, although original exit fees going straight into the freeholder’s pocket were dropped by McCarthy and Stone when the OFT began its inquiry into the issue.
But – just to re-cap – these fees are by no means the worst of it. Other issues are:
1/ Retirement properties routinely plummet from their original sale price;
2/ The leases are quite deliberately 125 or even 99 years. This does not catch out the first buyer, or even the second, but almost certainly will the third or forth. These short leases add value to the freehold: the extra windfall for developers when they flog it off. At above 82 years on a lease the cost of exending may be around £2,000; below 82 years it is more like £10,000 for a typical retirement flat. Also, it is well understood by these property professionals that the elderly do not extend their leases: so the freeholds are a growing asset.
3/ Controlling the management. No housebuilder is going to hand over the management of the sites willingly. There is plenty of scope for profit as the more of the residents’ money that is spent, the more you can charge to oversee the expenditure. This assumes, as was established with Peverel (now FirstPort), that the management is not also running a collusive tendering racket to benefit a subsidiary.
4/ Retirement housing management companies have a virtual monopoly over estate agency with flat re-sales, and employ the house manager to facilitate the sales. These estate agencies, with minimal staffing and high fees, and thought to be the most profitable estate agencies in the country.
Law Commission: Transfer of Title and Change of Occupancy Fees in Leaseholds
By Stephen Lewis
Our consultation on this project is open until 29 January 2016. This will be followed by interim recommendations in summer 2016.
Some residential leases require the leaseholder to pay a fee when they resell the property, sub-let it, and on certain other events. The fee can be up to 30% of the property’s resale price. The money either goes to the landlord or into a fund for the long-term maintenance of the site.
Event fees are common in specialist housing for older people. Smaller event fees are found in simpler retirement flats. A higher percentage fee is payable in full-service retirement villages where there may be a gym, swimming pool and 24-hour care available on site.
After public dissatisfaction at how some of these fees were used, the Office of Fair Trading investigated. Its 2013 report concluded that some terms were potentially unfair contract terms, but there was “a lack of clarity in the legal framework”: consideration should be given to legislative reform. In September 2014, the Department for Communities and Local Government asked the Law Commission to look at the problem, the law and possible solutions.
The fees are called by a bewildering variety of names, from “transfer fees” and “contingency fees” to “deferred membership fees” and “selling service fees”. But unlike normal service charges, none of them are subject to the control of the First Tier Tribunal (Property). And all of them are triggered by an event (such as resale or sub-letting). For this reason we refer to them collectively as “event fees”.
Event fees can allow people to use some of their housing wealth to pay for a higher standard of living in their later years. However, evidence shows a lack of transparency about such fees in the sales process.
We have spoken to organisations from both sides of the debate about event fees. These discussions have informed our provisional proposals.
In this video, Stephen Lewis, Law Commissioner for commercial and common, law sets out the case for reform and talks about our provisional proposals.
Consultation is open to the general public. The summary, full consultation paper and response form can be found below (together with background papers).
The aim is to make interim recommendations for reform in Summer 2016. If the project continues we will make final recommendations in March 2017.
For any queries, please contact firstname.lastname@example.org.