The BBC One Show on prime time telly featured retirement housing earlier this week (November 22).
The presenters warned that retirement housing can come with a “financial sting in the tail that can hit families at the worst possible time”.
Sebastian O’Kelly, of Carlex / LKP, which is a registered charity, told the programme:
“It is very good that older people live together communally, but unfortunately these can be the worst property investments you can make in your life.
“I am contacted by people who want to move because they are unhappy in their circumstances but they can’t: either because the value of their property has fallen so dramatically, or because there are such high exit fees that a sale is uneconomic.”
The BBC One Show followed the case of Penelope Garnham, of Beverley in Yorkshire, who in 2012 wanted to sell her mother’s £125,000 flat at Methodist Housing Association’s Rowanberries site.
We could not let it and we could not move in. We were upset by the range of restrictions imposed by MHA. It was a ghastly business and it went on and on.
Her mother lived at the Rowanberries site in Bradford.
Over 18 months while the flat was empty, Mrs Garnham paid £10,000 for service charges, which included payment for a “well-being package”. She was prevented from subletting in by the lease.
“I was so angry to have to pay for a well-being package when my mother was dead. How could there be any ‘well being’?” she asked.
Mrs Garnham eventually sold the flat back to the MHA for £40,000 less than her mother had paid for it.
“My mother was happy living there but she would have been mortified by this,” says Mrs Garnham.
Also on sale, the MHA received a one per cent exit fee for each year that she had lived there, amounting to £6,000.
MHA told the BBC One Show that the fees were fair, are shared by all and were made clear to the purchaser. The service and other charges are made to benefit the community at Rowanberries.
As Carlex has already pointed out, when this case featured on Radio 4 You & Yours, the MHA does in fact offer a buy-back deal at 95 per cent of the price originally paid. This was not taken up, but is an excellent offer given the uncertain values of retirement housing.
Stephen Lewis, of the Law Commission, was also interviewed about his code of practice for retirement providers who chose to charge exit fees.
The Law Commission is favour of these fees provided they are transparent. Carlex and AgeUK feel its report is a “step backwards” from the Office of Fair Trading two investigations into exploitative practices in retirement housing.
Mr Lewis made the point long established by Carlex and Channel 4 Dispatches that exit fees have not historically been readily disclosed by some providers. He described some of these sales practices as “absolutely dire”.
“We are going to introduce a code backed up by legislation that tells prospective purchasers at a very early stage all about the event fees [exit, sublet and other charges stated in the lease].
“This code is going to have teeth,” Mr Lewis told the programme. “If developers do not comply with it then the event fee is not going to be recoverable.”
The new code will come into force in February.
The Law Commission offers nothing for those already facing exit and other fees that were in the lease that purchasers signed with legal advice. The Office of Fair Trading said in September 2012 that these were “likely” to be an unfair contract term, but this point is not being pursued further.
The code will be of value to retirement housing providers whose business models require exit fees on sale of some variety, whether 10, 12.5 and even 30 per cent.
Some of these business models work in other jurisdictions, but are untested with the monetising opportunities of leasehold tenure.
It is certainly the case that some estate agents are unclear about these charges – and much else concerning leasehold properties, whether retirement or not. Their assurances should never be persuasive in a transaction of any type.
Carlex acknowledges and thanks McCarthy and Stone for having discontinued exit fees in January 2009 before the OFT inquiry criticised them as unfair in September 2012.
In the light of the Law Commission’s “code of practice with teeth”, it is an open question whether they may be reintroduced into leases at some future point.