October 20, 2020

Campaign against retirement leasehold exploitation is right to ‘expose outrageous behaviour of cowboys’, says Law Commissioner Stephen Lewis

LawComissionLKPCampaign against retirement leasehold exploitation has been right to expose “expose the outrageous behaviour of cowboys” in the retirement housing sector, the Law Commissioner Stephen Lewis told MPs and key leasehold figures at Westminster.

The Law Commissioner, who is presiding over an inquiry into leasehold “event fees” (triggered by events such as sale or subletting), said that the law is being broken, consumers are being misled and that leaseholders are facing “extortionate” subletting fees.

Mr Lewis was addressing an LKP round-table meeting on July 9 of 50 MPs and leading figures in leasehold. These included DCLG civil servants, property tribunal judges, lawyers, developers, leading property managers and the chairman and chief executive of the Leasehold Advisory Service.

The event was hosted by LKP patrons Sir Peter Bottomley (Conservative, Worthing West) and Jim Fitzpatrick (Labour, Poplar and Limehouse), and chaired by Martin Boyd, of LKP.

Mr Lewis eschewed the normally oblique references to dubious practices in the leasehold sector, titling his presentation (in full below) “The Good, the Bad and The Ugly”.

He began by citing the example of a retirement house buyer who is just about to complete the purchase of a retirement leasehold flat

“Then your solicitor calls. There’s a problem. The price you offered to pay – let’s say two hundred grand – so definitely not in London – was just the up front price. When you sell the house, a tenth of what you sell it for will go back to the developer who built it.

“You’d be outraged. You’d be astonished. And yet, in one sector of the housing market, the events I’ve just described are commonplace. That, ladies and gentlemen, is the retirement sector.

“I want to be absolutely clear. I have no objection in principle to people agreeing to pay an additional premium when they resell a property. And there is evidence that, in the retirement sector, such an additional payment is part of a financial model that can make things more affordable for those who wish to move to specialist older people’s housing.

“But what I do object to is the fact that, as in the example I just gave, a purchaser will not know what he or she is signing up for. People can spot, enquire about, view, offer to buy a property, have the offer accepted, instruct a solicitor and only then find out that the final cost is more than they expected because of the swingeing fees on resale.

Mr Lewis quoted the Office of Fair Trading inquiry into retirement transfer fees:

“The unusual, complex and delayed nature of transfer fee terms, coupled with behavioural biases, may mean that consumers do not make optimal purchasing decisions.”

He continued:

“We want consumers to be able to make fully informed purchasing decisions about properties with event fees. That’s what our reforms will set out to achieve.”

As an example of good practices in retirement housing provision, Mr Lewis referred to Campaign against retirement leasehold exploitation applauding the ExtraCare Charitable Trust.

The Bad is what Campaign against retirement leasehold exploitation has so rightly highlighted in the past. The cases of vulnerable pensioners being taken unawares by hidden fees.

“And thanks to the efforts of campaigners, valiantly now led by Sebastian O’Kelly of Campaign against retirement leasehold exploitation, the outrageous behaviour of the cowboys in the sector has come to wider attention.

“No one should be forced into accepting an event fee in their retirement flat. They should always be given the choice to pay up front instead.

“Only when their solicitor sees the lease do they find out that they have to fork out thousands of pounds in event fees when they come to sell the property.”

The Law Commission carried out its own “mystery shop” for a retirement flat.

“We found that estate agents who sell retirement property are not telling buyers about event fees. Even when the developer is selling the property directly the buyer isn’t being told early enough.”

Mr Lewis said that in a survey of 50 solicitors with experience in retirement property only twenty-three percent said that clients already knew about event fee before instructing them. That meant 77 per cent said that they did not.

Mr Lewis continued:

“The law is the ugly part. It’s ugly because there are existing laws in place being broken, but they aren’t being enforced.

“It’s ugly because event fees fall squarely in between two different legal areas – consumer protection law and landlord and tenant law.

“And above all it’s ugly because there is a mish mash of overlapping regulation in the sector, with multiple codes of practice, but nothing out there that quite hits the nail of event fees on the head.”

“Is the law being broken at the moment? Yes. How? Well, if you advertise a property at a particular price but forget to mention the event fees, this is seriously misleading to buyers.”

“We think that whether event fees are unfair contract terms depends on a number of factors, including the nature of the triggering event, whether the consumer had a choice to pay the fee up front instead, and whether there was full transparency about the event fees from the start of the sale process.”

“We want to bring clarity to the existing law of unfair contract terms, and to make clear how it fits in with property law.”

The Mr Lewis addressed “another ugly problem”: what to do about existing leases.

“We propose to make a minor amendment to Landlord and Tenant law so that our reforms will be effective from the next conveyance of the property.

“That means that the next time an existing leasehold property is sold, there will be a strong legal incentive for the industry to behave with transparency and fairness towards the incoming purchaser.

“We are planning to end the practice of charging extortionate sub let fees. Some people in the industry have been charging the same event fee that would be payable on resale every time the leaseholder sub lets the property or there is a change in occupancy. We don’t think that is fair, and we are working with the code owners to stamp out that practice

“But developers are savvy. I could certainly imagine them trying to bring event fees into the mainstream. And that’s why we need to make sure that if anyone tries to do this, the protections for consumers are ready and in place.”

The full speech can be read here:

LawCommissionerStephenLewis

Comments

  1. Michael Hollands says

    It is a pity that there seems to be some acceptance by the Law Commission that Exit/transfer Fees could be reasonable. They now call them Event Fees.
    Have they found any evidence that these fees do cover an actual cost or are they just taking the Freeholders word for it. I have never seen any evidence, the only reason ever given was that it covered the cost of vetting the next purchaser and this was proved to be a lie.
    A few years ago I challenged Fairhold several times to explain the reason for the Exit Fee and they eventually agreed there was no cost recovery attached to it. There was no Event. I hope the Law Commission are not being hoodwinked.

    • I posted that Karen Peel had challenged the Exit Fees, I should have posted, Susan Wood, sorry both for the name dropping.

      My neighbour whose mother passed away was charged for a Peverel Purchaser Information Pack which states that important information enclosed.

      It is misleading as the front cover states:-

      “This pack contains important information relating to the purchase and ownership of private of private residential property managed by Peverel Management Services Ltd”

      In stating on the cover that it is relating to “the purchase and ownership of a private residential property”
      when one purchases the time on the lease or what is left can be considered to be a false statement, is this correct.
      Can anyone inform us how much they were forced to pay for this and is it a hidden EVENT FEE, payable when leaving that is not mentioned at anytime or in the Lease???

      I have spoken to new arrivals at Ashbrook Court who informed me that they had:-

      “Purchased the flat and was not a Leasehold Tenant”
      “Stated, my solicitor friend would never allow me to purchase a property I didn’t own”

      From the 28 original residents in 2007/08 only 9 remain.

      • Michael Hollands says

        I think you are right there Chas, a lot of these residents have not a clue what they have purchased.
        I was looking at a Peverel managed complex earlier this year with only 76 years left on the lease.
        I asked several residents if they had applied for an extension. They looked at me aghast saying why on earth bother about that at their age.
        The Estate Agent said more or less said the same, I think the Peverel manager knew what I was on about but she said nothing.
        I think Extension of Leasehold periods should be the next subject on the Law Commissions agenda.

        • This is straight off the press and adds to the Peverel/Cirrus Price Fixing Scams from 2005/2009

          Peverel took on Cirrus to undertake maintenance work of Door Entry/Smoke Detection and Warden Call Systems.
          The engineers would call on these developments on a regular basis and were informed that they were to identify which development they could y consider could be upgraded or Replaced.

          The original contractor was a company called Tunstall but for no reason a Mr Keith Rutherford changed the Tunstall contract to Cirrus in 2004/05. This was a surprise as there had been a good working relationship with Tunstall, who were very good and did not rip off developments as Cirrus later did.
          Quite often you could ring Tunstall with a problem, they would talk a AM or RHM trough the problem. Cirrus would send out an engineer and then the development gets charged as it was “outside the contract”?
          The Whistle Blower at The Peverel Group must have been an executive decision and one of the four directors would have phoned the SFO/OFTs.
          Question asked, did the SFO notify Peverel? Who would know which QUANGO to contact?
          Names mentioned that were at Peverel at the time.
          Keith Rutherford
          Dave Ryder
          Graham Robinson
          David Cooper he was threatened with a disciplinary hearing for going out to tender to another company other than Cirrus. To be confirmed next week.

          I do believe the Directors of the Peverel Group were involved, if they were not aware why were they not aware as Cirrus won all the contracts and were unable to undertake the contracts and the waiting list got longer and longer so part of the deal was the loosing contractor would do the works as a subcontractor.

          Sarah Whitehouse is currently on leave but I have heard she has GOT the job with M&S, all the staff were horrified.
          They will soon find out the sort of nasty underhand sneak she is, always trying to get other members of the team in trouble.
          She is similar to SG Im afraid promises the earth delivers nothing.She was heard saying at a meeting:-
          “they are old people and they will do as they are told”

          I do not want any money for postage I believe this can help to bring justice to those who lived by the sword.
          WB

  2. Karen Peel was informed if my memory is still OK that it was for a service???

    Similar to the Peverel Pack that sellers pay which is full of information readily available and is another scam.

    The use of Event Fee shows that the real reason Exit Fee will gradually disappear form the MA curriculum and will mean leaseholders will be scammed again.

  3. Micheal/Chas,

    The law commissioners report at the bottom of the article covers the issues you raise. They are clear in their understanding of when it is not acceptable to charge these sort of fees which go to a landlords pocket and when it is viable to allow people to defer payments to make retirement living more affordable. These deferred payment fees are not the sort of thing seen in the mainstream properties run by Fairhold.

    The reason for using the term “event” rather than “exit” fees is to cover all costs which come up during a change of tenancy – which does consider your point Chas it also considers homes in the main part of the leasehold sector as well as those in the retirement sector.

    The talk also points out the law commission has done some useful homework. They have been on some “mystery shopper” tests and found some of the providers are still not giving prospective purchasers the full picture or explaining some of their fees.

    The notes of the round table meeting will be published as soon as we can. These make clear the law commission is intending to cover the types issues which arise during an change of tenancy not just what the sector happens to call particular charges at the moment.

    The public phase of the Law Commissions consultation starts in October and hopefully everyone will give their input.

    • Michael Hollands says

      I hope that the Law Commission publish the figures to demonstrate that these Exit/Transfer/Event Fees are justifiable. Otherwise they will take a lot of believing.
      What is the actual cost of a transfer of tenancy. I suspect nothing like 5/12% of the properties value.
      I have found that the Developers of rather posh retirement villages charge high prices for the initial purchase, high management fees and extortionate Exit Fees. Even if some are deferred they eventually have to be paid.
      Whichever way round they collect their money they are still very expensive and need to prove to the Law Commission that they are justifiable.