New leasehold scandal? Retirement villages face clampdown

A two year investigation by the Law Commission has ended with a claim that some owners of leasehold retirement properties, and their families and carers, are hit with “huge bills” hidden in “complicated formulas.”

The Commission says that the charging of so-called “event fees” or “transfer fees” can, when levied property, help offset service charges on good quality retirement housing. 

But it warns that some landlords “may hide complicated formulas deep in the small print or charge older people fees in unexpected situations.” These charges can be up to 30 per cent 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” says the report.

Now the Commission wants 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.

“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” explains Law Commissioner Stephen Lewis.

He says nearly all specialist retirement 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 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” says the Law Commission report.

“With event fees being anywhere up to 30 per cent 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” it continues.

Now 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. 

Its recommendations, which await a response from government, include:

- 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 per cent each year of the total event fee for the sale;

- Standardised 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.

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.

The Commission says that in 2015, there were 11.6m people aged 65 or over living in England and Wales, yet just 160,000 retirement properties. By contrast, 17 per cent of over 60s in the USA live in specialist housing, 13 per cent in Australia and 13 per cent in New Zealand.