OFT cuts deal with Tchenguiz on leasehold retirement sub-letting fees, but exit fees on sale still stand

The Office of Fair Trading has secured undertakings from Fairhold Homes Ltd and associated companies controlled by the Tchenguiz Family Trust to change how they charge retirement leasehold transfer fees at their 53,000 retirement developments.

The OFT has been investigating exit fees, which are payable when a tenant sells or lets out their retirement home and in some other situations, for three years and had promised a “substantive announcement” in August. Typically calculated as a percentage of the value of the property, these fees can amount to thousands of pounds.

As a result of the OFT’s investigation, Fairhold has agreed to make a number of substantial changes to the way in which it conducts its business. Fairhold has undertaken that it will not charge a transfer fee in any new leases it obtains through the acquisition or development of properties, unless the fee is for a service and represents its reasonable costs.

Fairhold has also agreed to change how it enforces terms in the leases of its existing retirement home properties:

• It has clarified that leaseholders will not pay any transfer fee when the lease is passed on through inheritance or surrendered, or when a relative or carer moves in with them.
• A flat fee of £85 (to be adjusted in future years in line with inflation) will be charged for sub-letting, replacing the current transfer fee of one per cent of open market value. This should make it more viable for tenants to sub-let properties they do not currently need to live in. Where it has discretion under a lease, Fairhold will also waive the separate contingency fund fee of one per cent of the open market value payable upon sub-letting. It will instead charge a fee equivalent to one month’s rent for each sub-let. Contingency fund fees are calculated in a similar way to transfer fees, but are paid into a ring fenced fund to pay for repair and maintenance of the development.
• A transfer fee of one per cent will continue to be charged on sale. But it will now be calculated against the lower of either the price the tenant sold the property at, or the price the tenant originally paid for the property.  This will give tenants certainty over their maximum liability at the time they purchase the retirement home, and also prevent disputes about what the right level of fee should be. The fee was previously calculated as a percentage of the higher of the sale price or open market value, which could lead to disputes about what the property was really worth.  It is worth noting that as retirement properties have proved to be among the worst investments in residential property, they often sell for far less than their purchase price of even 10 years ago.
• Fairhold will also provide potential new purchasers with clear information summarising all the amounts payable under the lease. This will be presented in an easy to read format accompanied by worked examples, helping potential leaseholders understand what they are agreeing to before they purchase. Fairhold will do this where it is made aware that the person has an interest in buying one of its retirement homes.

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 company said that it did not agree with the OFT’s view but co-operated and agreed to the changes.

Vivienne Dews, OFT Executive Director, said:

’We are pleased that we have secured changes from Fairhold, which is a major player in the retirement homes sector.  The changes will greatly reduce the circumstances in which transfer fees are charged, provide certainty upfront for leaseholders on their liabilities on sale, and improve transparency of costs for future tenants.

‘This case marks an important milestone in our continuing work to secure fairer and more transparent transfer fee terms for retirement home leaseholders.’

The OFT continues to investigate a number of other retirement home companies in relation to their use of transfer fee terms and intends to provide an update in the Autumn.