Event fees in retirement properties

Government responds to the Law Commission's recommendations on event fees

In a press release from the Minister of Housing, Communities and Local Government, James Brokenshire MP has announced that it will accept many of the Law Commission’s recommendations for event fees. The Government has stated that it will introduce a new statutory code of practice to ensure that event fees cannot be charged unexpectedly, any fees breaching this will be unenforceable.

See article

What are event fees?

'A fee payable under a term of or relating to a residential lease of a retirement property on certain events such as resale or sub-letting. Event fees may be referred to by a variety of names including exit fees, transfer fees, deferred management fees, contingency fees and selling service fees'. Law Commission

Event fees are common in specialist housing for older people. When someone moves into retirement housing, they can make use of the accommodation's services, e.g. the use of the residents’ lounge, a gardener or access to 24-hour care. There are costs for these services and some people who may be able to purchase specialist retirement housing could be income-poor and unable to pay the service charges. As a result they may prefer to defer payment until after the property is sold, rather than paying the whole cost through annual service charges.

To defer payment, developers/companies who manage this type of specialist property allow for the purchase of a long lease. This lease will include a clause which outlines that when the property is sold, a certain percentage of the proceeds of the sale must be paid back either to the developer or into a fund for the upkeep of the accommodation as a whole. Depending on the services available, the percentage can be as little as 1 per cent or as much as 30 per cent.

Why are event fees a problem?

Buyers are not always told about event fees before purchasing a property. In many cases buyers find out about the fee when they hire a solicitor to read the lease. By this point they have already invested their time and money in the purchase and it’s often too late to absorb further complex information about a fee they hope will only be payable after their death. Many people also feel that they have reached the point of no return and continue with the sale.     

Another problem is that the fees may be triggered by other events, such as sub-letting or taking out an equity release mortgage. In these circumstances the fees can come about unexpectedly and amount to thousands of pounds.

WHY IS IT IMPORTANT TO ESTATE AGENTS?

Estate agents must comply with Consumer Protection Regulations (CPRs) and consumers need to be made aware of event fees at the point they see the property advertised, visit an office or view the property. It’s also important that the issue is highlighted when the buyer puts in an offer and has it accepted. 

Furthermore, downsizing is a part of the housing cycle and allows for many younger buyers with families to make use of larger properties which older people often still occupy. With an ageing population, these types of property will become more prevalent. When purchasing retirement housing, many developers will go through the fees with prospective buyers and many agents do the same with the lease. It’s important that purchasers and their families realise that the longer they live in these types of property, the higher the charge is likely to be.

What is NAEA Propertymark doing about event fees?

Through our consultation responses we have been supporting the Law Commission as they look to introduce stringent codes of practice that require developers, operators and managing agents to bring event fees to the attention of prospective buyers. We worked directly with the Law Commission to discuss proposals for providing guidance to estate agents.

CODE OF PRACTICE

In March 2017, the Law Commission drafted a code of practice protecting consumers by preventing them from being charged in unexpected circumstances. The code limits the circumstances in which event fees can be charged and in some cases, the amount that can be charged.

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, totaling no more than 10 per cent of the fee which would be payable upon sale.

View code

DISCLOSURE DOCUMENT

The Law Commission proposed that clear information about event fees should be provided in a standard disclosure document. Any advertisement that mentions the price of the property must also specify that an event fee is payable.

Concerns were raised that some 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 the code of practice—even where the agent neglected to advise the consumer. However in this instance, consumers will be able to seek redress through Government-approved redress schemes like The Property Ombudsman (TPO).

GREY LIST

Where there is a breach of the 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