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You are here: Home / Latest News / Campaign against Residential Leasehold Exploitation and AgeUK reject Law Commission draft on exit fees

Campaign against Residential Leasehold Exploitation and AgeUK reject Law Commission draft on exit fees

November 14, 2016 //  by Sebastian O'Kelly

lawcommissiondraftreportLaw Commission backs developers over huge exit fees, and dumps OFT qualms over ‘likely’ unfair contract terms

What began as an exercise supposedly to help pensioners and their families facing exit fees in retirement properties has ended up with the Law Commission backing the charges.

The Law Commissioner Stephen Lewis met Campaign against Residential Leasehold Exploitation / LKP last week and its patron MPs Sir Peter Bottomley and Jim Fitzpatrick.

He was informed that the Law Commission proposals were “a step backwards”.

Subsequently, AgeUK also informed the Law Commission that “exit fees, unrelated to delivery of a service should be banned”.

The charity echoed the thoughts of LKP in saying: “placing the onus on older residents to legally challenge unfair practice is unrealistic”.

The Law Commission says it was asked in 2014 “to look at event fees in light of public dissatisfaction at how some of these fees were being used”.

Instead, it has bent over backwards to accommodate new and existing upmarket retirement developers for whom high charges on sale are part of their business model.

This is in spite of the fact that there was an outcry over these fees in the mainstream retirement market, and McCarthy and Stone stopped including exit fees in leases from January 2009.

An investigation by the Office of Fair Trading followed which reported in September 2012:

“The OFT considered that the transfer fee terms were likely to be in breach of the Unfair Terms in Consumer Contracts Regulations 1999 (the UTCCRs).”

The Law Commission is uninterested in these historic fees, which may apply in as many as 150,000 leases.

The exit fees on sale and subletting were one of several monetising practices that explain the origins of Campaign against Residential Leasehold Exploitation.

The others were: predatory management; shadowy offshore freeholders; the systematic cheating of pensioners in the Peverel / Cirrus collusive tendering racket ruled on by OFT; loaded commissioners for contractors, such as insurers; dismal resale values of retirement properties (where 40% falls on new prices are frequent).

Instead of bothering with any of this, the Law Commission decided to concern itself with the business models of new entrants to the retirement housing sector, and some upmarket existing ones, which charge high exit fees on sale.

Provided they are transparent they are fine, the Law Commission has decided.

It bewilders Campaign against Residential Leasehold Exploitation why the Law Commission is seeking to facilitate these business models in the UK – which combined with the monetising possibilities of English leasehold law may or may not prove problematic ¬– instead of addressing the issue already outlined by the OFT.

LKP welcomes new entrants into this market, and new thinking from abroad.

But what appears to work well in a highly regulated Australasian context – where 17% of over-65s live in retirement accommodation, may not work so well here, regulated by our flawed landlord and tenant law. (We are less enthusiastic that this developer is building with 125 year leases, which means it is keeping the whiphand over the leasehold owners.)

In the UK, only 2% of over-65s live in designated retirement developments. Under the circumstances, that is not surprising.

Most oldies downsize to ordinary smaller properties, which track resales in the local property market and come with far fewer problems.

We have reminded the Law Commission that its inquiry into exit and subletting fees came about following two OFT investigations into a dysfunctional retirement housing market.

Campaign against Residential Leasehold Exploitation activists made a huge effort to provide the evidence to begin the OFT exit fee inquiry, which was strongly opposed by the sector at the time.

A decision was taken with developers and freeholders not to proceed via the courts in return for agreements to limit future charges for certain exit fees that were not provided as a benefit to the sinking fund

The second OFT investigation into the retirement housing sector, again prompted by Campaign against Residential Leasehold Exploitation whistleblowers, concerned Cirrus, a subsidiary of Peverel (now FirstPort), cheating pensioners at 65 sites in a bogus tendering scam.

It resulted in a leniency deal with Peverel, which was co-operating with the investigation – or owning up, as it might otherwise be termed – a derisory “goodwill” payment to the sites affected and fines for stooge contractors, who went into administration and paid nothing.

The Campaign against Residential Leasehold Exploitation whistleblowers, meanwhile, were threatened with prosecution by the OFT if they compromised this feeble and tokenistic inquiry by going to the press. They were the only ones facing criminal sanction in the entire vapid process.

Against this background, the Law Commission began its leisurely study. Somehow or other, it has ended up deciding that easier exit fees for those retirement housebuilders who say they would rather like them is the way forward.

Provided these fees are “transparent”, of course. “Transparency” – surely an exhausted word in leasehold? – appears to translate in practice as: provided an estate agent makes reference to them on the advertising somewhere.

The Law Commission seems unaware of dissatisfactions in the upmarket retirement sector.

There is the obvious point that high exit fees mean pensioners cannot sell up and leave if the move has not worked out.

We reported these issues of residents in a Retirement Villages site here:

The Campaign against Residential Leasehold Exploitation has been consulted on many occasions by residents at upmarket sites, or by their concerned families, although the Law Commissioner seems to believe we are only occupied with the “one-per-centers” of the mass market, to use its patronising term.

We have urged families to contact the Law Commission with their evidence, and some have done so.

One example involves a family whose elderly relative lived in a £310,000 retirement flat at Bramshott Village, run by Urban Renaissance Villages.

Only 18 months after purchase the relative died. Exit fees kicked in: within three years they were five per cent; then 10 per cent for another three years; thereafter 15 per cent.

In the meanwhile, the flat had fallen in value to £282,500.

So the cost of 18 months retirement living here was £60,000.

In fact, some adjustment was made to the exit fee, although subject to a non-disclosure agreement (NDAs).

In other retirement villages, new leases are issued on resale.

This means that the substantial monetary losses of families reselling a retirement property back to the freeholder is not evidenced on the Land Registry.

The upper middle classes might not be making as much noise as the “one-per-centers”, but that does not mean they are unaffected by some of the practices in this flawed sector.

Related posts:

You and Yours features Campaign against Residential Leasehold Exploitation and OFT inquiry into leasehold management AgeUK echoes Campaign against Residential Leasehold Exploitation in demanding retirement housing reform Default ThumbnailImportant AgeUK event – exit fees Campaign against Residential Leasehold Exploitation reveals abysmal retirement housing re-sale values DCLG stakeholders hear of ‘calamitous’ Law Commission report on exit fees

Category: Exit fees, Latest News, Law Commission, NewsTag: AgeUK, Jim Fitzpatrick, Law Commission, Sir Peter Bottomley

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Previous Post: « Philip Rainey QC: Reform of the law is a duty (and for landlord and tenant law it is overdue)
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Reader Interactions

Comments

  1. Michael Epstein

    November 15, 2016 at 8:29 am

    Exit or event fees help disguise the true service charge costs.
    Rather similar to many car purchase schemes that offer cheap finance with a high balloon payment due at the end.
    Unlike the car purchase schemes for which the final payment is readily explained to the customer, in the case of property it appears that it is the duty of the buyer to find out about the exit or event fees.
    The idea of an exit fee is broadly meant to offset the service charge payments by paying either an upfront or selling percentage of the value of the property.
    Of course, this has the effect of raising funds for development accounts unsupported by real or anticipated expenditure.

  2. Michael Epstein

    November 16, 2016 at 9:14 am

    Slightly curved ball (even by my standards!)
    What happens when a block of flats is subject to a Compulsory Purchase Order, such as will be the case for HS2?
    How could fees be collected for the maintenance of a block that is being demolished?
    Also may I ask, where a compulsory purchase is made,what formula is used to arrive at a valuation for the freeholder? And if there is a formula for calculating the freehold value, why can this not be used to establish leaseholder’s costs for purchasing a freehold or extending their leasehold interest for a statutory 90 year extension?

  3. Paul Joseph

    November 17, 2016 at 10:45 am

    I heard the law commissioner Mr Lewis listen to arguments on this issue at a meeting at AgeUK. It seemed to me that he was a) unfailingly polite when subjected to a lot of anger and sometimes less than fully informed opinion about his actual powers and b) a bit too persuaded of the merits of, in effect, allowing elderly retirement leaseholders to enjoy the certainty of low costs during their remaining time on earth at the expense of their estate bearing high costs afterwards.

    The principle is not entirely unreasonable in and of itself. However, given all the other abuses to which leaseholders are prey, and which are outside the scope of Mr Lewis’s remit, I think a decision in favour of the foxes is simply wrong. Mr Lewis might feel differently if an elderly relative of his were taken advantage of and, as result, a child of his who might otherwise have been helped onto the property ladder with a legacy were unable to do so.

    If a reputable 3rd party, an actuarial firm, say, made similar arrangements taking into account the age and health of the leaseholder, that would be one thing. Developers and freeholders are another matter and their track record is of monetisation not equitable treatment of the elderly. Which would anyone with a knowledge of the industry trust?

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