April 23, 2017

End transfer fees, or let LVTs rule on whether they are reasonable, says OFT

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Parliament should end the levying of transfer fees – that is, exit fees and sub-letting fees – or allow the Leasehold Valuation Tribunals to rule on their reasonableness,

This is one of the key findings in the Office of Fair Trading’s prolonged investigation – published today – into a lucrative and unjustifiable earner that is unique to the retirement leasehold industry.

The “egregious unfairness around such terms” have long caused the OFT concern. McCarthy and Stone was pressurized into giving up enforcing exit fees in January 2009 and stopped including them in future leases.

But as McCarthy and Stone had already sold its freeholds with these lucrative income streams to the Tchenguiz Family Trust, it had little effect on the developer.

The Tchenguiz freehold companies enforce exit fees, but agreed last summer to moderate the punitive capital value percentages on sub-letting – which made retirement leasehold properties uneconomic to rent out.

The OFT sees little future in the retirement leasehold housing sector where these fees apply:

However, from an economic and policy perspective we remain of the view that the transfer fee model is not optimal for consumers. For this reason, although we have sought to improve the position for leaseholders (tenants) in relation to existing leases, we have consistently maintained our position that we want this business model to cease being used in newly built or acquired developments. Consistent with that view, most of the landlords we have actively investigated have agreed not to include transfer fee terms in the leases of new retirement home developments, unless the transfer fee is for a service and is no more than the actual costs reasonably incurred.

We intend to keep the sector under review in order to monitor compliance with undertakings given to the OFT by some landlords, and will have specific regard to any new evidence or changes in the law that may arise.

Finally, we recommend that legislative reform be considered as a means to address the difficulties tenants have in challenging the reasonableness of transfer fees, such as for example by expanding the remit of the Leasehold Valuation Tribunal to allow the tribunal to rule on the reasonableness of such fees or by prohibiting the levying of such fees altogether.”

The discrediting of transfer fees – a nice earner for years in the retirement leasehold sector, opens the possibility of a new model for retirement living.

Carlex will give the report long consideration. It strongly favours developers building retirement housing, selling it and then … just go away!

Instead, McCarthy and Stone and its imitators encrusted the lease with revenue earners, one of which the OFT has trashed today.

The full OFT report can be read here

Comments

  1. How does Carlex and the OFT now rate that part of the Exit Fee strategy that allocates a % of the property sale price to the development’s Contingency or Sinking fund ?

    Historically Carlex has been sympathetic to this, because it generates income for the development and without it service charges would have to be increased to cover the deficit.

    As an example my development has benefited to the tune of £6320 from sales and subletting fees over our last annual accounting period. [£150 per lease approx.]

    Comments Please

    • All these different “ways” of obtaining money are down to companies greed and planned legal theft of vunerable (usually the very elderly or bereaved families) peoples money. I do not agree with any exit fee costs, and am amazed that even Carlex support a % of the sale money going into the contingency/sinking fund.
      Firstly this confirms that whatever the monthly S/Charge is, is not really true if it has to be topped up by a number of unknown sales of unknown monetary amounts.
      If budgets are done correctly the correct M/Charge should result. If it means increasing the current M/Charge to residents still living in it, so be it.
      You cannot run this type of business in the hope of obtaining an unknown amount of money from flat sales to prop up an inadequate/badly managed M/Charge fund

      • trevorb
        There is nothing underhand in factoring in the % going into the contingency/sinking fund as the service charge calculations are assessed and declared regardless of any contingency/sinking fund credits.

        My example does not indicate an actual reduction in the service charge, but is an example of its worth should contingency/sinking funds become low enough to need extra funding.

        I’m sorry if you found this misleading.

        They do NOT go to the Landlord/ Managing Agent but are for the leaseholders financial benefit.

        I’m sure if you study your ‘Statements of Accounts’ from your managing agent this will become clear.

        • I have to agree with everything that OMhostage says. He is 100% right.
          Regarding MY statement of accounts – I am very very very lucky we have NO problems whatsoever. We are 18 flats and we have jointly owned the freehold since 1995/6.
          The place runs to perfection. We have no exit fees, No % to a sinking fund and no commissions to anyone.
          Budgets are done correctly.
          Our managing agent receives a set agreed fee, nothing else.
          We have a managing agent for admin etc but he is responsible to the Management Company – thats us, the 18 freeholders. The only downside, if there is one is that the management company needs unpaid directors like me to oversee things.
          I see no reason at all why the estate of someone who dies should have to contribute to the reserves for future expenses in the property; this is simply a private taxation system imposed by the landlord.

  2. Whether it’s underhand is debatable and depends on the extent to which it was made clear to the purchaser. I see no reason at all why the estate of someone who dies should have to contribute to the reserves for future expenses in the property; this is simply a private taxation system imposed by the landlord.

    Landlords of leasehold property have not been slow at spending accumulated reserves and, in the case of OM Property Management, at doing so without consultation with leaseholders and by appointing connected companies when spending reserve funds. In short, it just makes misappropriation easier by reducing the cost of it to surviving leaseholders.

    Most leaseholders given a clearly explained choice between paying apporitioned costs for actual expenses and reserve contributions or a lower sum and then a rip-off tax charged to their estate would, I believe, choose the former.

    It’s just a grubby, predatory scam targeting the most vulnerable.