Exit fees – Transfer fees – Contingency fees – Event fees
These are all the names by which fees are levied in some retirement property leases and compel leaseholders to pay a fee for a variety of what the law commission is calling ‘events’ and which although lawful, have caused consternation and concern. This is because they are not always explained to the purchaser of a property until he/she comes to sell his/her property and has to hand over part of the sale price, either to, and sometimes both, the Landlord and the savings or deposit bank account of the residents of the building they are leaving.
In 2013 an OFT report raised concerns that event fee terms are not always presented transparently and the Law Commissions own research, involving a mystery shopper exercise, and a survey of conveyancing solicitors, confirmed these concerns.
Finally the Law Commission has picked up this ball and is running with it. It found that that particular features of event fees made them potentially unfair. The OFT made criticisms including:
- Event fees may apply in unexpected circumstances. Consumers know about them when they sell their property but not if they sublet it, when a loan is secured against it or when a carer or spouse moves in
- The fees are not always linked to a service provided by the landlord; some are put into a sinking or maintenance fund
- The terms of the lease which requirement payment of event fees are not always transparent to consumers and the financial consequences not given prominence in sales materials
- The terms exploit consumers who may not take the terms into account in their decision making
In October 2015 the Law Commission published a consultation paper and received 168 responses. In May 2016 they published an analysis of responses received and in June of that year, a progress report.
They proposed a detailed code of practice for event fees be set in place ~ approved by the Secretary of State and backed up by legislation, so that event fees which did not comply with the code of practice would be unenforceable.
In September last year they published a draft code of practice and received 43 responses.
In a nutshell the Law Commission saw a case for event fees to be regulated by:
- Preventing event fees being charged in unexpected circumstances
- Imposing obligations on landlord/operators to provide transparent information about event fees to consumers at an early stage, including indication of how much a consumer may have to pay, enabling informed choices to be made
- Make it easier for consumers to challenge unfair event fees by providing increased legal certainty
The recommendations for a code of practice came down to 2 points:
- To limit the circumstances in which event fees may be charged and sometimes the amount to be charged
- To impose obligations on Landlords/operators to provide transparent information about event fees to consumers at an early stage of the purchase process including how much the event fees may be
In reference to point 1 the Law Commission recommend that event fees should only be chargeable on:
- sub-letting where the property is no longer the resident’s only or principal home
- change of occupancy where the resident has died or where the property is no longer the resident’s only or principal home
In terms of limiting the amount charged they propose a prescribed cap:
As an example when the prescribed cap applies the amount of the event fee payable in a year will be no more than 10% of the event fee which would be payable on sale of the property. So on sale of the property if the event fee is £2000, the event fee payable would be no more than £200 in a year. The figure of 10% is based on the average length of stay in a retirement property.
Another example is when the event fee increases according to the length of ownership up to a given maximum, no event fee is payable on sub-letting or change of occupancy until the maximum rate is reached. This limits the number of times an event fee can be paid.
In reference to point 2 the Law Commission recommends the code of practice should place obligations on landlords/operators to provide clear information about event fees to consumers in a specified format ~ a disclosure document.
It will include an explanation of how the fee is calculated, who receives it and what the consumer will receive in exchange for the fee.
Full and further information is available online here.
Due to the ongoing need for investment in new homes, this issue is ongoing and the Law Commission is not done with it yet.