Law Commission backs developers over huge exit fees, and dumps OFT qualms over ‘likely’ unfair contract terms
What began as an exercise supposedly to help pensioners and their families facing exit fees in retirement properties has ended up with the Law Commission backing the charges.
The Law Commissioner Stephen Lewis met Campaign against retirement leasehold exploitation / LKP last week and its patron MPs Sir Peter Bottomley and Jim Fitzpatrick.
He was informed that the Law Commission proposals were “a step backwards”.
Subsequently, AgeUK also informed the Law Commission that “exit fees, unrelated to delivery of a service should be banned”.
The charity echoed the thoughts of Campaign against retirement leasehold exploitation in saying: “placing the onus on older residents to legally challenge unfair practice is unrealistic”.
The Law Commission says it was asked in 2014 “to look at event fees in light of public dissatisfaction at how some of these fees were being used”.
Instead, it has bent over backwards to accommodate new and existing upmarket retirement developers for whom high charges on sale are part of their business model.
This is in spite of the fact that there was an outcry over these fees in the mainstream retirement market, and McCarthy and Stone stopped including exit fees in leases from January 2009.
An investigation by the Office of Fair Trading followed which reported in September 2012:
The Law Commission is uninterested in these historic fees, which may apply in as many as 150,000 leases.
The exit fees on sale and subletting were one of several monetising practices that explain the origins of Campaign against retirement leasehold exploitation.
The others were: predatory management; shadowy offshore freeholders; the systematic cheating of pensioners in the Peverel / Cirrus collusive tendering racket ruled on by OFT; loaded commissioners for contractors, such as insurers; dismal resale values of retirement properties (where 40% falls on new prices are frequent).
Instead of bothering with any of this, the Law Commission decided to concern itself with the business models of new entrants to the retirement housing sector, and some upmarket existing ones, which charge high exit fees on sale.
Provided they are transparent they are fine, the Law Commission has decided.
It bewilders Campaign against retirement leasehold exploitation why the Law Commission is seeking to facilitate these business models in the UK – which combined with the monetising possibilities of English leasehold law may or may not prove problematic ¬– instead of addressing the issue already outlined by the OFT.
Campaign against retirement leasehold exploitation / LKP welcomes new entrants into this market, and new thinking from abroad.
But what appears to work well in a highly regulated Australasian context – where 17% of over-65s live in retirement accommodation, may not work so well here, regulated by our flawed landlord and tenant law. (We are less enthusiastic that this developer is building with 125 year leases, which means it is keeping the whiphand over the leasehold owners.)
In the UK, only 2% of over-65s live in designated retirement developments. Under the circumstances, that is not surprising.
Most oldies downsize to ordinary smaller properties, which track resales in the local property market and come with far fewer problems.
We have reminded the Law Commission that its inquiry into exit and subletting fees came about following two OFT investigations into a dysfunctional retirement housing market.
Campaign against retirement leasehold exploitation activists made a huge effort to provide the evidence to begin the OFT exit fee inquiry, which was strongly opposed by the sector at the time.
A decision was taken with developers and freeholders not to proceed via the courts in return for agreements to limit future charges for certain exit fees that were not provided as a benefit to the sinking fund
The second OFT investigation into the retirement housing sector, again prompted by Campaign against retirement leasehold exploitation whistleblowers, concerned Cirrus, a subsidiary of Peverel (now FirstPort), cheating pensioners at 65 sites in a bogus tendering scam.
It resulted in a leniency deal with Peverel, which was co-operating with the investigation – or owning up, as it might otherwise be termed – a derisory “goodwill” payment to the sites affected and fines for stooge contractors, who went into administration and paid nothing.
The Campaign against retirement leasehold exploitation whistleblowers, meanwhile, were threatened with prosecution by the OFT if they compromised this feeble and tokenistic inquiry by going to the press. They were the only ones facing criminal sanction in the entire vapid process.
Against this background, the Law Commission began its leisurely study. Somehow or other, it has ended up deciding that easier exit fees for those retirement housebuilders who say they would rather like them is the way forward.
Provided these fees are “transparent”, of course. In practice, this seems to mean: provided an estate agent puts them on the advertising somewhere.
The Law Commission seems unaware of dissatisfactions in the upmarket retirement sector.
There is the obvious point that high exit fees mean pensioners cannot sell up and leave if the move has not worked out.
We reported these issues of residents in a Retirement Villages site here: https://www.betterretirementhousing.com/trapped-in-a-retirement-villages-site-once-you-are-in-how-do-you-escape/
Campaign against retirement leasehold exploitation has been consulted on many occasions by residents at upmarket sites, or by their concerned families, although the Law Commissioner seems to believe we are only occupied with the “one-per-centers” of the mass market, to use its patronising term.
We have urged families to contact the Law Commission with their evidence, and some have done so.
One example involves a family whose elderly relative lived in a £310,000 retirement flat at Bramshott Village, run by Urban Renaissance Villages.
Only 18 months after purchase the relative died. Exit fees kicked in: within three years they were five per cent; then 10 per cent for another three years; thereafter 15 per cent.
In the meanwhile, the flat had fallen in value to £282,500.
So the cost of 18 months retirement living here was £60,000.
In fact, some adjustment was made to the exit fee, although subject to a non-disclosure agreement (NDAs).
In other retirement villages, new leases are issued on resale.
This means that the substantial monetary losses of families reselling a retirement property back to the freeholder is not evidenced on the Land Registry.
The upper middle classes might not be making as much noise as the “one-per-centers”, but that does not mean they are unaffected by some of the practices in this flawed sector.
This is very disappointing news, particularly as many of us took the trouble to supply conclusive evidence.
Has the Law Commission given reasons for their backing of Exit Fees. I thought that almost everyone else had considered them to be unfair.
To just come to conclusions, without evidence to back it up, gives the impression that they have been “nobled” by powerful forces. And the lowly Leaseholder does not count.
It all sounds very similar to the treatment of First Port by the ARMA Regulatory Board. They were not prepared to substantiate their strange verdict which again disadvantaged the elderly leaseholders.
I attended the meeting at Portcullis House and felt the Law Commission were looking more favourable at the retirement developers than the Residents. People pay a high price to live in a retirement apartment, they also pay high service charges even when they no longer live in the apartment Time to scrap leasehold retirement properties and change to Common Law Tenure At the moment elderly people are being exploited
How fortunate the Law Commission were to have the input of industry wide respected companies such as Firstport and Estates & Management.
The Law Commissions draft report on Exit Fees appears to agree with the ARHM new code.
In fact the ARMA new code appears to have been produced with the cooperation of the Law Commission.
So the present position is not surprising.
And this new code was welcomed by many parties, including the Government and even Campaign against retirement leasehold exploitation in their article dated 10 June.
So it now appears that around six years of campaigning and the millions spent by the OFT on this subject will have been a waste of time.
The ARHM and ARMA codes were not produced with the cooperation of the Law Commission and both cover different issues to those set out in the Law Commissions report
Campaign against retirement leasehold exploitation has always supported a number of aspects of the ARHM code but have been very critical that it is often not enforced. As you know they did not even begin an investigation following the two OFT reports.
The latest ARHM code published in June this year came out of many years of work with input from AgeUK, Campaign against retirement leasehold exploitation and many others including the government. To our understanding the Law Commision did not take part in that work.
The ARMA Q standard predates the work of the Law Commission having been published in 2013.
My mention of ARMA was a mistake on my part and I agree that the Law Commission has had no input into ARMA Q. I meant ARHM whose code had input from the Govetnment Dept who do cooperate with the Law Commission to make any proposed reforms run smoothly.
Nevertheless the Law Commissions views seem to coincide with the ARHM code and they do have a close working relationship with The Government Department which help produce the ARHM code.
My view is because many organisations seemed to welcome the ARHM code (which did not criticise Exit Fees) then it is difficult for them to now be too critical.
My submission to the Law Commission, like many others, was that all types Exit Fees are totally unfair and should be scrapped. I think even the OFT agreed with this.
The aim of the Law Commission is to ensure the law is fair – modern- simple- cost effective . I have quoted the aim from their own website ( lawcom.gov.uk )
1. I can say the leasehold system and most LEASES are definitely NOT fair to leaseholders. Developers and Builders can pitch their selling price for new property under freehold title or under leasehold title and choose whichever title gives the maximum profit . The sale of property under leasehold title is not fair for the buyer /consumer because they are sold a long term rental agreement which does not give any right to ownership of the property and they pay more than the equivalent price for new property sold under freehold title.
2. Modern it is NOT . Today’s leases still include the right of forfeiture and Landlord can start proceedings if ground rent arrears and service charge arrears exceed £350 over 3 years.
3. Simple it is definitely NOT because those gentlemen at Law Commission don’t understand the lease terms or the abuses carried out by unscrupulous investors under the leasehold system laws.
4. Cost effective it is NOT. because the leaseholder’s investment in the Lease is reduced to ZERO when the lease reaches expiry date. The lease is worthless when the property is handed back to the Lessor .
To really meet the declared aims of the Law Commission , the developer or builder must be required to sell the property under 999 year leases at peppercorn ground rent . Most definitely – NO Ground Rent.