December 15, 2017

DCLG stakeholders hear of ‘calamitous’ Law Commission report on exit fees

The DCLG leasehold stakeholders’ group was told yesterday that the Law Commission report into exit and other fees published earlier this month was ‘calamitous’.

The study had come about following the Office of Fair Trading investigations into the retirement housing sector.

One concerned the systematic cheating of pensioners over the Peverel / Cirrus collusive tendering racket (Dec 2013). The other investigation was into exit fees (Sept 2012), which concluded that they were potentially an unfair contract term.

As a result, several retirement housebuilders – McCarthy and Stone and Churchill among – dropped exit fees.

Rather than address abuses in the retirement housing, the Law Commission decided that its core purpose was to remove ambiguity over exit fees to help new housebuilders in the sector.

After extensive commercial lobbying, it decided that exit fees on resale of a retirement property were fine so long as they were transparent.

This would encourage investment in retirement by those housing providers who recoup (extra) profits on the resale of an asset by the original buyers.

They also mean that housebuilders, or freehold investors, can borrow against this future income stream.

There was absolutely no reason for the Law Commission to enter this controversial territory. Substantial exit fees already exist:

The Sunday Times reported Audley Retirement’s exit fees earlier this month, where a family paid £48,000 on sale.

https://www.betterretirementhousing.com/grannys-audley-retirement-home-money-pit/

Barchester Homes has exit fees of 10 per cent and 50 per cent of any uplift in value.

Plenty of smaller retirement village providers have the perfect storm of retirement housing fees: large exit fees; monopoly estate agency; vague admin charges; prohibition on subletting (disastrous for families already paying for a relative’s extra care).

These business models existed before the Law Commission decided to undermine the work already done by the Office of Fair Trading into the fairness of these fees.

In short, the primary purpose of the OFT was to protect pensioners; the primary purpose of the Law Commission report was to help housebuilders (and freehold investors) whose business models include high exit fees.

In return, consumers get a code of practice which means estate agents and others have to make these exit fees “transparent”. 

That is major step backwards in terms of consumer protection compared with the OFT’s ruling on the potential of these fees to be unfair contract terms.

It also means, thanks to this pretty tokenistic effort, that the housebuilders and freeholders who abandoned or revised their exit fees when the OFT was asking questions, can now happily reintroduce them.

 

An alternative view of this report by the Elderly Accommodation Council can be read here: http://www.firststopcareadvice.org.uk/law-commission-event-fees-retirement-properties/#comment-19449

Comments

  1. Case against LEASE
    *lack of democratic accountability
    *do not report to parliament
    *not headed by ministers
    *clear political value
    *outsourcing contentious decisions
    *reduces public influence
    *political imperatives

    Conservatives stated intention to abolish Quangos as they do not perform technical functions, requiring political impartiality, or to act independently in establishing facts.

    LEASE Impartial???
    *do not perform technical functions
    *do not act independently
    *operates at arms length by Government 
    *not removed – executive interference
    *secretly maintains status quo

    QUANGO is a byword for:
    *Wasteful bureaucracy
    *Lack of Democratic Accountability
    *Patronage
    *Influence

  2. The Law Commission is a statutory independent body. We aim:

    to ensure that the law is as fair, modern, simple and as cost-effective as possible
    to conduct research and consultations in order to make systematic recommendations for consideration by Parliament, and
    to codify the law, eliminate anomalies, repeal obsolete and unnecessary enactments and reduce the number of separate statutes.

    The above statements are copied from Law Commission website .

  3. Professor Nick Hopkins

    Professor Hopkins was appointed as Law Commissioner for property, family and trust law on 1 October 2015. He has been researching and teaching property law for over 20 years. His publishing portfolio includes: co-author of the OUP’s leading land law textbook, Land Law: Text, Cases and Materials; case notes editor of The Conveyancer & Property Lawyer; and Chair of the editorial board of Modern Studies in Property Law. He has served as Convenor of the Property and Trusts Section of the Society of Legal Scholars and has twice received the Royal Institution of Chartered Surveyors’ award for Best Property Paper.

    Professor Hopkins is Professor of Law at the University of Reading. He is also a Fellow of the Royal
    Society of Arts.

    We should ask Prof Hopkins to update himself on Leasehold abuses practiced by freeholders by joining the APPG meetings .

  4. Sajid Javid: “I don’t see how we can look the other way while these practically feudal practices persist.” © PA
    Ripe for reform

    The more you look into leasehold, the more you realise how the whole system urgently needs reforming.

    The Law Commission is a statutory independent body. We aim:

    to ensure that the law is as fair, modern, simple and as cost-effective as possible
    to conduct research and consultations in order to make systematic recommendations for consideration by Parliament, and

    Prof Hopkin, the Law Commission is looking the other way

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