Beware retirement properties

“An investigation has exposed systematic ‘abuse’ in fees for retirement properties.

According to the Law Commission, which has just completed a two-year probe into the practice, retirement home residents are being charged ‘event fees’ triggered by one-off occasions, like sub-letting the property.

It warned that there are “major problems” with the way these fees are charged – and how they are hidden in the small print.

When older people buy a retirement property, it is generally on a leasehold basis. My own grandfather lives in a lovely complex just over the road from my parents.

As with normal residential leasehold properties, there is a host of additional fees to worry about, and they come with all sorts of names – exit fees, transfer fees, contingency fees, etc.

And according to the Law Commission they are open to abuse. Its investigation found that these fees can be hidden within the small print of complex lease documents, or are disclosed too late in the process for the buyer to take them into account.

Bad timing

There is also a significant issue about exactly when these fees are charged, which the Law Commission said may come as a “surprise” to the owner because of how broadly drafted the fee is.

For example, it is reasonable to expect that an event fee might be charged when you sell the property.

But the Law Commission’s investigation found numerous examples of the fee being charged when the property was inherited or mortgaged, when a spouse, partner or carer moved in, or when the normal resident moved out.

These fees aren’t small change either – they can work out as much as 30% of the property’s value!

What’s most irritating about all this is that it is nothing new. Back in 2013 the Office of Fair Trading (remember them?) also looked into the issue, and found the exact same problems, suggesting that a number of the fees being charged were unfair and actually a breach of the Unfair Terms in Consumer Contracts Regulations.

Yet here we are, four years later, and the same fees are being charged, hitting older people in the pocket.

Hurting the supply of retirement homes

These fees are bad enough just from a moral point of view, but some believe that they are actually serving as a barrier to more retirement homes being built.

Nicola Charlton of law firm Pinsent Masons suggested that the “legal uncertainties” over the status of event fees “have in the past dissuaded developers from building the homes older people need and investors from providing the required funding”.

Now that the Law Commission has published its views on the fees, this uncertainty is removed, which could possibly mean extra investment of as much as £3.2 billion into new – and badly needed – specialist retirement housing.

There are currently only around 160,000 retirement properties like those reviewed by the Law Commission, which simply isn’t enough.

Is regulation the answer?

The Law Commission has declined to call for event fees to be scrapped entirely, as it argues that they can actually make specialist housing affordable precisely because some of the payments for services are essentially deferred until the property is sold.

Instead, it wants regulation with the introduction of a new code of practice overseen by the Department for Communities and Local Government.

This code of practice would limit when a fee can be charged, and in some cases exactly how much can be charged.

It would also impose “stringent obligations” on landlords to provide transparent information about exactly which fees may be charged early in the process.

This idea has had a warm welcome from the industry. A statement from the Associated Retirement Community Operators said: “It’s been long overdue, and we believe that an event fee that has not been transparently disclosed should not be charged.

In other countries, event fees are a well-established mechanism that can enable older people to use their housing equity to ‘enjoy now and pay later’, for example by reducing their service charge or deferring some of the costs of building communal facilities.”

However, the Campaign Against Retirement Leasehold Exploitation (CARLEX) described the report as “tokenistic”, adding: “Pensioners and their families who feel they have been blatantly cheated in retirement housing have reason to feel let down.”

What to consider when buying a retirement property

Clearly, if you are thinking about buying a retirement property it pays to look carefully through the contracts to ensure you fully understand what fees you are likely to have to pay and precisely when they may be charged.

It isn’t just these event fees you need to consider either – there will also be service charges to cover maintenance and upkeep of the property to account for. These are often higher than the service charges you may face on a normal property, as retirement homes tend to come with more services included.

Critics claim that the managing agents and maintenance firms are often offshoots from the freeholder, meaning there is no actual competition for the role, resulting in eye-watering overcharging.

It also pays to do your research on the resale value. Have similar retirement properties in the area been resold at a decent price?

These properties can be more difficult to sell than a normal home, while you will want to check the small print of your contract to ensure you are free to choose who you market the property through – some freeholders insist that you resell it through their own company, with a higher fee to pay than selling through an estate agent.

Given how difficult it can be to resell a retirement property, you may prefer to rent instead.”

http://www.bbc.co.uk/news/uk-politics-39678859