April 23, 2017

Crisis in retirement housing is all down to planners, says ARCO (not greedy operators drawing up sneaky revenue-earning leases or management companies on the fiddle)

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ARCOHere we go again! The apologists for property developers are blaming planners again – this time for the crisis in retirement housing.

Something called Associated Retirement Community Operators (ARCO), which represents retirement village operators such as Anchor, Hanover, Retirement Villages etc, says the current provision of specialist retirement housing is “woefully inadequate”.

Never a truer word, Carlex would agree. But then ARCO starts talking utter cobblers:

“Until local authority planning departments [need to] face the fact that the UK population of over 65s is set to reach 20 million by 2030 and action needs to be taken now to address this.”

Actually, the action that could be taken now is for ARCO to support Carlex in weeding out some of the dodgier operators in this sector.

Posh retirement sites clustered around a nice old house are some of the worst operators in retirement leasehold, in spite of strong competition from the mass market.

Lawyers for Carlex were staggered to see examples of the onerous leases involved (see below), and the BBC Inside Track is doing a documentary on this sector in January.

One retirement cottage in East Anglia, which was bought for £400,000, is on the market at £250,000 and the purchaser only lived there for five months. For three years, it has been empty, racking up £35,000 in service charges.

In another case in Hertfordshire, a retirement site with 29 cottages has 10 of them empty. As the families’ estates have to pay full service charges, the complex would be profitable if the whole site were empty.

The parents of two sisters paid £275,000 for a cottage in 2005, and it is now languishing on the market at £265,000. (Their mother lived there for only six weeks before moving into full care.)

After two years unsold, the sisters will pay £20,000 in service charges on the empty property, which they will settle up from the sale proceeds.

At this site the properties are sold via an estate agency owned by the owner’s brother, who charges a modest £1,000 fee. He is making little effort to sell the place, the sisters feel.

There is also a 10 per cent exit fee to be paid on sale, or £26,500 – a staggering sum. Unusually, this exit fee is based on the sale price or the purchase price, whichever is higher.

In the Office of Fair Trading agreement with the Tchenguiz Family Trust companies in September 2012 here resulted in the one per cent exit fee being charged either on the purchase price or sale price, whichever was lower.)

Again, unusually, new leases are issued once the properties are re-purchased adding to the imbalanced relationship, and the site owner can veto purchasers.

Communications with the site owner are appalling, and the sisters have repeatedly asked for a breakdown of costs so they are not presented with a dubious bill when the property eventually sells.

In a final insult, no subletting is allowed on this site, so there is no alternative to leaving the cottage empty and the two sisters go on paying eye-watering costs.

(Anchor unilaterally decided to ignore this exclusion in its leases and allow subletting as properties languished on the market. Carlex was critical, but only because it is not for a freeholder like Anchor to start ignoring the lease. Obviously, if a majority of residents support the measure, it is fine.)

Carlex has involved three MPs in the case: former housing minister Mark Prisk, Oliver Heald and Andrew Langsley, who all have constituents involved in the scandal.

 The analysis by Carlex’s lawyers:

“This lease is unusual and very one-sided. The conditions seem very harsh, but as this is an agreement willingly entered by the lessee, they appear to me to be binding.

The lessee, who has to be over the age of 60 to qualify, pays a premium of some £300,000 for what purports to be a 99 year lease. But the lessee cannot ever sell or rent out the demised property. When the lessee dies, the lease is terminated – it does not fall to the lessee’s estate. The lease is also terminated in a number of other circumstances, including:

 a)      If the lessee decides not to live in the property anymore

 b)      if the management company decides the lessee is no longer a suitable occupant or

 c)       if the lessee fails to make the payments under the Care Service Agreement, then the lease is terminated.

When the lease is terminated, the lessor and the management company then tries to sell the bungalow to another qualifying person, ie over the age of 60 years, and enters into a new lease with that person. Immediately following completion of the new lease the lessor will pay to the lessee or the lessee’s personal representative a sum equal to the premium paid by the new lessee, less the following;

 a)      Cost of repair and putting the bungalow in good decorative order prior to re-sale

 b)      Fees, expenses and costs to lessor and management company in granting the new lease, including legal, surveyor, estate agent fees

 c)       Any sums due or owing to the lessor or management company under the terms of the lease or the Care Service Agreement and

 d)      An amount equal to 2% of the premium for each year or part of year of the term of the lease up to the date of determination, with a maximum of 10%. In this case, with a premium of £300,000 that means an “exit fee” of £6,000 for each year the lessee was in the bungalow, to a maximum of £30,000.

 This practice is obviously wide spread and the “exit fees” / “transfer fees” in particular have been a cause for concern for some time. In September 2009 the Office of Fair Trading issued formal written notice to 26 retirement home businesses (estimated to represent over 80% of the retirement homes market) setting out their concerns over the transfer fees charged when residents sold or rented their properties. Most of these providers have provided undertakings to curb the transfer fees and the details of the undertakings are contained in the OFT Investigations Report that was published in February this year – see full report attached.

 The OFT has recommended that legislative reform be considered, for example by expanding the remit of the LVT so as to allow the tribunal to rule on the reasonableness of such fees or by prohibiting the levying of such fees altogether. In the meantime the lessee would have to go to Court for a ruling as to whether or not these fees are reasonable.”

The rest of ARCO’s self-serving press release limps on in this fashion:

ARCO, the Associated Retirement Community Operators, calls for policymakers to wake up to this major gap in future housing provision for older people.

The statement comes on the first anniversary of the ARCO formation. Established by leading operators across both the not-for-profit and private sectors to campaign for greater provision of specialist housing with care across the UK, the organisation has increased considerably in size and now represents more than 300 retirement communities across the UK – more than 50% of the UK retirement community market.

Jon Gooding, ARCO Chair, said: “The growth in ARCO’s membership during our first year shows the strength of support for these key issues affecting our elderly population. As we continue to strengthen our ranks, we will also strengthen our voice as we urge policymakers and planners not to rest on their laurels. To keep pace with the demand for good homes for older people we must push for more growth in specialist housing options that enable older people to lead active and fulfilled lives for as long as possible.”

ARCO has set an ambitious target to have 5% of older people living in retirement communities by 2030 and calls on planning departments to adopt a more consistent and positive approach to dealing with applications for specialist housing for older people. It says the current 40,000 [1] units is a ‘drop in the ocean’ yet the over-65 population is set to reach 20 million by 2030 [2].”

ARCO was founded in 2012 to help solve the housing needs for the next generation of retirees who face multiple social problems such as unsuitable housing, high care costs and loneliness [3]. ARCO members support residents to age in place in their homes in a retirement community by ensuring standards of homes are high and are equipped with necessary tools to prevent falls or injury, and by providing older people with activities and care on site.

 

Comments

  1. The examples in these leases are exceptional. Perhaps they are less then helpful as many might feel that they are comparatively lucky with their leases. In some cases it makes a bad situation worse by reinforcing the negative perception of retirement homes.

    I look back 30 years when in a southern “County Town” and its locale, retirement units and homes suitable for retirees, were flying off the shelves and attracting “daft” premiums for proximity to the shops bus stops and on level ground.

    Today several schemes, without exit fees but age and letting occupancy restrictions, some as low as 55, are harder to sell than a council flat that is on fire. And next to the Tip.

    In part it is because the qualifying people at 55 or 60 are very different in health and expectations that those 30 years ago- for most 70 is the new 60- while expecting to be active and long-lived beyond that. Planners have failed to consider that and approaches by owners to release or amend, even in part, the age qualifications, have been met with bewilderment. To them its “but they will be needed someday” and therefore can stand empty until then.

    It is not just that they ignore the reality that they are considerably cheaper than comparable flats, but that the demand is far weaker, as those at 55 or 60 see no need to think about this option as their parents once did. It might seem like a sensible and cheap option, but a lack of demand or need at such an age, combined with negative press, all helps to undermine it.

    I would hope that these extremes do not overshadow the much more widespread problems of exit fee exploitation, planning issues, letting and the fallacious concept that retirement homes always need special measures and higher management costs to manage. Remove those and then there will be a sea change.

  2. This needs some work.

    The Associated Ripoff Community of foxes and other predatory Operators, calls for policymakers to wake up to this major gap in future housing provision for older chickens.

    Farming old chickens for profit. What next?