LC: Some landlords getting away with “very high” hidden fees in retirement properties

31 Mar 2017 10:11 AM

Older people who have moved into retirement leasehold properties could be being hit with unfair fees worth thousands of pounds, according to the Law Commission.

After a two-year investigation, the independent law body has found that there is real potential for abuse in the charging of so called “event fees” or “transfer fees”.

When the system works well, which it does most of the time, these fees help offset service charges payable in good quality retirement housing. But a few rogue landlords may hide complicated formulas deep in the small print or charge older people fees in unexpected situations.

Owners are not always being told about the charges, which can be up to 30% of the property price. Others may be hit by huge bills for changes to occupancy, even when a carer moves in to look after the owner or where they have to move into a nursing home and sub-let their property to cover costs.

Now in a report published today, the Commission urges the Government to regulate the sector and bring in a new code of practice – to make these fees more transparent, stop unexpected fees and allow a right to challenge unfair fees.

Law Commissioner Stephen Lewis said:

“For many, event fees are a good way to enable the purchase of a quality retirement property now, by deferring payment of some of the running costs until they come to sell their home later.

“But, in the worst cases, a few unscrupulous landlords are getting away with very high hidden fees buried deep in the small print of a long and complicated lease.

“We’d urge the government to crack down on rogue landlords by regulating the sector and making sure that before consumers sign on the dotted line, they have already been told exactly what’s being provided for their money.”

Taking care of unfair event fees

Each year thousands of older people consider a move to a smaller property. This may be as a result of a recent bereavement or that their care needs have changed.

For many, specialist retirement housing provides a good option with health and social benefits for people who could otherwise become isolated. However, high-quality specialist housing is expensive and can include services such as communal facilities, security and on-site care.

Nearly all of these properties are sold on a leasehold basis and many of these leases include a fee triggered by certain events – such as when the owner sells or sub-lets their property.

These fees can be a practical way of making retirement flats affordable. Particularly for older people with low incomes, because they can defer some of the running costs until the property is sold.

These charges, known as “event fees”, are levied by the majority of developers of the 160,000 retirement properties in England and Wales.

But owners and their families are sometimes not told about the fees until after they have agreed to buy the property. The fees can also be charged when the owner is not expecting it, such as when a spouse moves into the property or when the owner moves into a nursing home and sub-lets the property.

With event fees being anywhere up to 30% of the total property price, they can run into the tens of thousands of pounds. Some are not clear about what services can be expected for the money and concerns about this were raised by the Office of Fair Trading in 2013.

As a result, the Department for Communities and Local Government asked the Law Commission to consider how to make event fees fairer for older people.

Now, following public consultation, the Commission is recommending the regulation of the sector and changes to the law to bring in a new code of practice, which outlines minimum mandatory standards that landlords must comply with. Indeed, the Law Commission has heard from some providers in the industry who are in favour of higher regulation to stamp out bad practice and to provide greater protection for consumers.

Our recommended reforms would mean:

• Preventing fees being charged unexpectedly. They would now only be charged when the property is sold, or, in limited circumstances, when the property is sub-let or where the resident has died or the property is no longer their primary home.
• A cap on the fees charged for sub-letting or change of occupancy – this would be no more than 10% each year of the total event fee for the sale.
• Standardised, transparent information to be provided at an early stage in the purchase process. This would include how much the fee is likely to be, an explanation of how the fee is calculated, who receives the fee and what the home owner will receive in exchange.
• Changes to the Consumer Rights Act 2015 so that if landlords breach the code of practice event fee terms would likely be unenforceable.
• Protections so that if a resident’s partner or carer moved into the property as their principal home an event fee could not be charged on that change of occupancy.
• Guidance and an online database for estate agents and consumers to ensure that event fee information is included in all advertisements.
• The proposed reforms are also intended to reduce the uncertainty currently surrounding the legal status of event fees.

Currently there is a shortage of retirement properties and legal uncertainties are dissuading developers from building the homes older people need, and investors from providing the required funding.

In 2015, there were 11.6 million people aged 65 or over living in England and Wales, yet just 160,000 retirement properties. By contrast, 17% of over 60s in the USA live in specialist housing, 13% in Australia and 13% in New Zealand.

But, if the legal uncertainty around event fees is removed or reduced, the retirement leasehold sector estimate that there could be an additional £3.2 billion investment by private companies over the next 10 years to build more high-quality retirement leasehold properties.

Further information

The Law Commission is a non-political independent body, set up by Parliament in 1965 to keep all the law of England and Wales under review, and to recommend reform where it is needed. Since then 73% of all reports have been accepted or implemented in whole or in part.

On 29 October 2015 the Law Commission opened a public consultation on event fees. View the consultation paper here: http://www.lawcom.gov.uk/wp-content/uploads/2015/10/cp226_residential_leases.pdf

Today the final report with recommendations to government for reform is published here: http://www.lawcom.gov.uk/project/event-fees-in-retirement-properties/

The proposed reforms would apply to new leases after the reforms are implemented and, in some cases, would take effect on the next sale of an existing lease.