February 24, 2024

We need retirement ground rent gaming like a hole in the head, says ARCO

Nick Sanderson, CEO of Audley and the chair of the Association of Retirement Community Operators, opens the annual conference in London yesterday

Gaming the new ground rents ban by introducing them at the last possible minute was damaging to the entire retirement housing sector and “we need this like a hole in the head”, said the Association of Retirement Community Operators at its annual conference yesterday.

Michael Voges, ARCO chief executive, deplored bad practices in retirement housing and rebutted criticisms of the media for reporting them, which were expressed at the conference.

“Unfortunately, these stories are largely true,” he said.

Many of them either originate with or quote LKP / BetterRetirementHousing.com, which have been campaigning for an improved retirement housing sector for since 2012.

Mr Voges did not did not name the housebuilder, but it was reported in April on LKP and www.BetterRetirementHousing.com that Churchill Retirement had issued new leases on March 31 with ground rents of £625pa. This was a pointed message to government by the privately-owned company as it was the day before its new ground rents ban came into effect on April 1.

Churchill Retirement is owned and run by the McCarthy family whose patriarch, John, founded McCarthy and Stone in the 1970s and sold it in 2003, as he relates in his biography, “Building a Billion”.

“Blighting a sector” might be an alternative title for those critical of the housebuilder leasehold business model and the fact that only 2% of over-65s in the UK live in designated retirement accommodation – far less than other English speaking jurisdictions such as New Zealand, Australia and North America.

The modern McCarthy and Stone – there have been successive owners since 2003, although no dumping of the brand name – has made improvements and now manages its own sites:

But the historic legacy includes – high ground rents; controversial service charges; appalling resale values; flogging appartment block freeholds to monetising financiers; 1% exit fees on resale for no service at all (dropped, when the Office of Fair Trading began inquiries); describing 999-year leases as “virtual freeholds” (dropped, after this nonsense was called out by LKP / BRH). One could add the creation of Peverel / FirstPort, from Hampshire estate agent to the largest property manager in the country – whose subsidiary Cirrus was the subject of another OFT investigation over a collusive tendering racket for door entry systems at retirement sites.

Churchill Retirement was set up as an entirely separate company by John McCarthy’s sons Spencer, the CEO, and Clinton McCarthy, but it broadly follows the same housebuilder business model that John McCarthy pioneered at McCarthy and Stone.

In June Spencer told Sir Peter Bottomley, a patron MP of LKP, that he deprecated the new ground rents ban; that they helped pay for the communal areas in retirement sites that non-retirement housebuilders do not provide; that the leases created with ground rents were on existing schemes and that no new ground rents would be applied to leases created after April 1 2023 in compliance with the legislation.

On the other hand, creating new ground rents at the last possible minute – and LKP is receiving reports of Churchill ground rents even higher than £625pa – was a strong expression of disapprobation at the ban, which Churchill says it wants to overturn in its latest annual report.

LKP advises potential purchasers to insist that these clauses are struck out, or purchase elsewhere.

Working up a head of steam in February, Mr McCarthy has also criticised Michael Gove for being anti-business, and deplored the £3 billion levy on housebuiders to pay up for the post-Grenfell cladding building safety defects. His views were expressed in an interview with Housing Today

Unfortunately, Mr McCarthy appears to be on non-speaks with LKP at present – even when invited to set out his vision for retirement housing to the All-Party Parliamentary Group, of which LKP is the secretariat. This is unfortunate as we used to communicate in the past (and, we acknowledge, with one particular case study Spencer McCarthy personally did intervene helpfully to resolve a family’s distress, whose elderly relative lived in a Churchill site).

Churchill’s last minute ground rent performance was not echoed by McCarthy and Stone, which also argued against a ground rent ban.

Instead, it told LKP:

“We have removed ground rents from every new-build property we are selling from 1 April 2023 in line with Government legislation and we expect all developers to do the same.”

For a very small sub-sector of the retirement housing market – which is in itself very small in the UK – the Association of Retirement Community Operators has an extraordinary degree of clout: there are 150,000 private retirement properties, of which only 25,000 are private housing with care providers. ARCO’s membership includes rental offers and organisations offering retirement housing for social rent. Including social housing, the retirement sector is around 300,000 units.

Yet just about everyone wants the sector to expand – living in retirement housing is excellent for many older people, particularly the bereaved, the lonely, the infirm. There are numerous examples of contented retirement sites, including those built by the housebuilders mentioned above. Society would benefit too, as larger family houses would be freed up for younger families and there is persuasive arguement that health service costs do reduce.

“A good place to die” is too unvarnished an advertising slogan for today’s tastes, but ask anyone from where they would want to journey into eternity and the chances are that they will reply: at home, surrounded by family and friends.

Government has been wanting the sector to expand for years, which explains why housing minister Rachel Maclean attended (just before the leasehold debate in Parliament, of which more later).

And the delegates are such an interesting, eclectic mix, ranging from charities such as the Extra Care Charitable Trust, the Methodist Housing Association and Jewish Care, to housing associations such as Anchor, high-end private providers such as Audley, Inspired Villages, owned by Legal and General, the Retirement Villages Group and the very fancy New Zealand operator LifeCare Residences.

Also present in number were executives of the Retirement Villages Group, founded by LKP trustee Bob Bessell, 89, who is gifting the freeholds to his sites to the residents’ management companies.

Past years have seen delegates from Goldman Sachs and Blackstone, the $911 billion US private equity fund.

A vital part of the retirement community operators business model is an “event fee” on re-sale: which can rise to 30% of a property’s value.

ARCO provides data to demonstrate that consumers like this model: retirees want to keep their cash and enjoy it, and are less bothered by a big bill when they sell-up, which in most cases means when they die. This is certainly the case with the financially sophisticated, often Chelsea-based, buyers at LifeCare Residences at Battersea Place, where the event fees are 30%.

The children, however, are less blase about seeing their inheritance take a hit, and here is a report in The Sunday Times concerning the resale of a Retirement Villages Group property at Mayford Grange in Woking, Surrey:

LKP / Better Retirement Housing was invited to comment on this story but declined as we did not think that the clearly stated event fee was an issue.

Perhaps, reading the above, Professor Julienne Meyer CBE, who heads the Older People’s Housing Task Force and who addressed the conference, may have a point when she said that the media has difficulty differentiating between bad and not-bad practices in retirement housing. (For some reason, LKP / BetterRetirementHousing.com has not been invited to take part in the task force, nor the All-Party Parliamentary Group nor Sir Peter Bottomley in particular. In spite of the fact that us, it and him have done the most to keep this sector under some sort of accountability.)

We are broadly accepting of event fees – so long as they are prominently made clear to consumers and are associated with services: so if, say, they pay for a gym or care or a swimming pool or a restaurant and these services cease to be provided, then the event fee similarly ceases to be charged. This is not so popular with community operators, who want a freehand with additional event fee income to pay for what they think is important, which may of course include their own salaries.

Housing minister Rachel Maclean spoke of the government’s commitment to leasehold reform, improving right to manage and enfranchisement. It was a speech largely repeated in the parliamentary debate later in the day. She also spoke with engaging frankness of the retirement housing decisions she faces in her own family.

One very satisfied customer of the Extra-Care Charitable Trust’s site at Shenley Wood Village expressed the hope that commonhold would not be imposed on all retirement communities, as he had chosen his provider with due diligence and did not want to be a director of anything etc. Rachel Maclean obliged, saying there was no intention to impose commonhold on anyone (it is an issue for new, unmanaged blocks of flats, not existing ones – which may or may not chose to convert to commonhold at some stage). Neither commonhold nor leasehold are very useful where the community provider is picking up all the major works bills, which is why New Zealand has a form of license to occupy for its retirement villages.

Relative newcomers to the retirement community sector talked of their experiences trying to persuade councils to grant planning permission, while others talked of how they had managed to sell out the sites.

Dr Sanjay Kaushal, a former GP and founder of Castlemeadow Care which owns care homes in East Anglia, talked of planning frustrations, but then his scheme to provide an intergenerational retirement community for 200 along with accommodation for 100 students in partnership with the University of East Anglia is strikingly unusual. One for a future article, perhaps.

Gavin Stein, of Elysian Residences, and Henry Lumby, of Auriens Group, discussed the lack of a clear regulatory regime for retirement community operators being an impediment to dealing with local councils over planning. ARCO has long been urging a Retirement Villages Act, akin to the similar regime in New Zealand, to define and regulate the sector.

The inadequacy of leasehold as a tenure for retirement villages was discussed by ARCO’s head of legal Sally Ireland in a session that included Bob Rosewall, head of investment in later living at Legal and General.

It has invested in a £500 million joint venture with NatWest Pension Funds in taking over Inspired Villages. The aim is to provide 5,000 new homes over the next 15 years, but it acquired six existing sites, where the tenure is leasehold with no certainty over service charges and where capital expenditure on major works could be recouped from leaseholders.

Mr Rosewall, who also addressed the APPG in March this year, explained that Inspired had reworked the leases to assume the capital expenditure costs and to ensure that resale values remained consistent and healthy.

A recurring theme at the ARCO conference is that one of the main impediments for the elderly to buy designated retirement housing is the fear of sudden and unavoidable capital expenditure demands – costs for crib walls, fire compartmentation in the roof and other build defects have been controversies with elderly residents in the past.

Catastrophic resale values are also a concern, and an unarguable demonstration that things are not going right.

Freeholds generate millions for retirement home executives

Construction companies and their executives have generated huge wealth by selling leasehold retirement homes.Several well-known businessmen and their families, including Vincent Tchenguiz and William Waldorf Astor IV – David Cameron’s brother-in-law – also own or control the freeholds to many of the

As all the retirement community operators are long-term management businesses, ensuring that resales – to which event fees apply – remain healthy is crucial to the business. The fact that the operators are responsible for all the major works costs is also a huge reassurance.

But how do you sell these products and distinguish them from the broader retirement housing market, about which the public is distinctly wary?

Many of ARCO’s members have emerged from a care home background, and charities, and draw on reserves of trust among consumers.

The Extra Care Charitable Trust sold out both phases of its 300-unit Shenley Wood Village in about a year each, helped by spill-over demand from a nearby Milton Keynes site.

Jewish Care sold out its 48-unit Pears Court site in Harrow within six months, largely through word of mouth in the north London Jewish community. Its CEO Daniel Carmel-Brown said that proximity to a care home helped families make the decision.

The obvious point is that both these organisations are deeply trusted brands.

Bob Green OBE discussed the establishment of a 19-unit retirement site in west London through Tonic Housing, which is the first provider in the UK of LGBT+ affirmative retirement housing, largely funded by grant from the greater London Authority and to a large degree relying on volunteer staff.

Most unusually the ARCO conference had a panel made up of customers from Birchgrove, Extra Care Charitable Trust and Anchor talking about the community support aspect of retirement living: how they welcome new residents, help each dealing with bereavement or incapacity and leave open the option of communal involvement.

It was a fascinating session, and as it could have meant airing complaints – it didn’t, in fact – it was quite risky one for ARCO to host.

One leaves an ARCO conference optimistic about the state of retirement housing.

There is a wealth of experience and insight provided by people who have spent their careers in the care sector: people like former nurse Julie Armstrong-Wilson, who talks with refreshing good sense – and no infantilising euphemisms – about ageing, infirmity and death – which those facing it discuss with a good deal less squeamishness than those who are much younger.

Couple that with talking to people like James Cobb, chief customer officer of Inspired Villages, and Nick Sanderson, CEO of Audley and the ARCO chair, who are both commercial operators in this sector, who understand what is needed to make a retirement community with customers who recommend them and yet remain a viable business.

An interesting suggestion from Mr Cobb was that the government should waive inheritance tax – presumably on property only – for those who free up their family homes and move to a retirement property.

Plenty of ideas in this sector, and from people who seem determined get things right for the long term.