Office of Fair Trading -
07 Sep 2012
OFT secures changes from Fairhold in retirement homes transfer fees investigation
The OFT has secured undertakings from Fairhold Homes Limited and associated companies (Fairhold) to change how they charge and enforce transfer fee terms in their 53,000 retirement home leases.
The OFT has been investigating these fees, also known as exit fees, which are payable when a tenant sells or lets out their retirement home and in some other situations. 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, amongst other things, 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.
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.
See the case closure summary for further details of the undertakings provided by Fairhold to the OFT, including a copy of the undertakings and a list of retirement home properties covered by the settlement.
Undertakings under Part 8 of the Enterprise Act 2002 were given by Fairhold Homes Limited and apply to the wider Fairhold corporate group's freehold interests in leasehold retirement home properties that contain transfer fee terms. The undertakings relate to alleged breaches of the UTCCRs and the Consumer Protection from Unfair Trading Regulations 2008.
The UTCCRs protect consumers against unfair standard terms in contracts they agree with traders. The OFT can take legal action to prevent the use of potentially unfair terms. A term is likely to be considered unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations under the contract, to the detriment of consumers. A consumer is not bound by a standard term in a contract with a trader if that term is unfair. Ultimately, only a court can decide whether a term is unfair.
Fairhold has also agreed that, should it sell the freehold interest in any of its leasehold retirement home properties, it will secure the agreement of the purchaser to abide by the terms of the undertakings.