Many leases for specialist retirement properties require residents to pay fees on certain events such as sale, sub-letting or change of occupancy.
The Law Commission has drafted a code of practice in order to protect consumers, preventing them from being charged in unexpected circumstances
In their report on Event Fees in Retirement Properties, the Law Commission opted for regulation rather than abolition, stating that event fees facilitate the overall supply of specialist retirement housing but that there is an obligation for information to be given to consumers through disclosure documents.
So, what is the Law Commission proposing?
Code of Practice
The draft code of practice limits the circumstances in which event fees can be charged and in some cases, the amount that can be charged. The Commission stopped short of banning the fees, saying instead that they should be more transparent.
The recommendations suggest that the Secretary of State for Communities and Local Government now has a responsibility to amend the Consumer Rights Act to enable the code of practice to be enforced directly by a consumer on new leases.
Additionally, where a landlord or operator has subscribed to the code of practice they must also comply in relation to new and existing leases so as not to breach the Consumer Protection from Unfair Trading Regulations 2008 (CPR’s).
When can event fees be charged?
Currently, fees may be payable when residents move out or need a carer to move in, and can often be charged up to 30% of their property's value.
The Law Commission has recommended that fees only be chargeable upon sale, if the property is being sub-let (where it is no longer the residents main home), or when there is a change of occupancy.
Where a fee is charged on sub-letting or a change of occupancy, it should be subject to a prescribed cap, totalling no more than 10 per cent of the fee which would be payable upon sale.
Clear information about event fees should be provided to customers in a standard disclosure document, and any advertisement that mentions the price of the property must specify that an event fee is also payable.
When selling a property off-plan, the landlord/operator must provide prospective purchasers with the disclosure document at the point an interest in the property is expressed. For properties which are not sold off-plan, the disclosure document must be provided on the buyers first visit to the property.
The Elderly Accommodation Counsel has put themselves forward to host an online database of landlord/operator details that charge event fees.
Concerns have been raised that in some cases, estate agents may fail to provide the disclosure documents to potential buyers. The Law Commission confirmed that event fees will still be enforceable as long as the landlord/operator has complied with code of practice, even where the agent neglected to advise the consumer.
Consumers will be able to seek redress in this instance through Government approved redress schemes such as The Property Ombudsman.
Where there is a breach of code of practice and the event fee has been presumed unfair and unenforceable, it has been advised that the Consumer Rights Act 2015 be amended to cover a term:
- of or relating to a residential lease
- which has an object requiring payment
- where there has been a breach of an approved code of practice
NAEA Propertymark are currently working directly with the Law Commission and have discussed proposals for providing guidance to estate agents.
The Code of Practice is awaiting statutory approval and in the meantime, NAEA Propertymark have requested an implementation timescale along with confirmation from the Secretary of State in relation to the Consumer Rights Act being amended.