June 24, 2017

Exit fees: what to do after the OFT/Tchenguiz deal

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OFT website outlining the agreement is here
http://www.oft.gov.uk/news-and-updates/press/2012/77-12

After a three-year investigation, the Office of Fair Trading finally expressed its view earlier this month that exit fees on sale were “likely” to be unfair … but that they still need to be paid.

The announcement came in the form of a deal with the Tchenguiz freehold-owning companies, such as Fairhold and Proxima, which dominate retirement leasehold. Overwhelmingly, these sites were bought from McCarthy and Stone and are managed by Peverel. The Tchenguiz portfolio represents 60-70 per cent of the management company’s business.

There were some very welcome elements to the OFT/Tchenguiz deal, principally the flat fee of £85 for sub-letting. This ended the absurd one per cent of capital value sub-letting fees which McCarthy and Stone had originally worked into the leases. These were always a try-on foo far and, if applied, made retirement leasehold unlettable. Some defiant owners of empty retirement properties simply ignored the fee and rented out their properties without paying. The full statement on the OFT/ Tchenguiz deal can be read on this site (put ‘OFT’ in search) or on the OFT website here There are links on the site to the full details of the agreement, together with a useful ‘Question & Answer’ section.

Far less impressive is the OFT taking three years to offer the opinion that exit fees, also called transfer fees, are “likely” to be unfair [see below] but that it is not going to do anything about them. These exit/ transfer fees are not to be confused with the one per cent contingency fund fee, the principle of which has never been disputed (although the OFT has issues about how they are applied, as can be seen on its site).

“We want exit fees tested in court,” says Bruce Moore, of Hanover housing assoviation

The length of time the OFT’s investigation has long dismayed Carlex, and drawn criticism from, among others, the Hanover housing association. In May its chief executive Bruce Moore criticised the OFT for its inactivity. “We wanted this tested in court, but the OFT didn’t want to do this,” he said. “This leaves an important area of the investigation unresolved.” You can read Carlex’s report on Hanover here 

The OFT would prefer to leave these charges for cash-strapped pensioners or their heirs to contest in court, rather than make a ruling on them. On the other hand, a challenge through the courts would have been (for them) protracted and expensive.  And unpredictable. Instead, it offers the mealy-mouthed opinion that the charges are “likely” to be unfair, and proposes to do absolutely nothing about them.

So, this is what you should do

If you are selling a retirement leasehold property, and being charged an exit fee, you must get your solicitor to state to the landlord:

  • that you disagree with the fairness of the one per cent exit fee;
  • you should quote this paragraph in the OFT statement: “The OFT considered that the transfer fee terms were likely to be in breach of the Unfair Terms in Consumer Contracts Regulations 1999 (the UTCCRs).”
  • You should point out that in the event of exit fees being ruled unlawful in court, you will be claiming back the exit fee payment, with interest and charges.

There is nothing to prevent leaseholders taking action in the Small Claims Courts, which are designed for claims up to £5,000.  The OFT’s view that the fee is likely to be an unfair contract term is a powerful one. Depending on what you were told at the time of purchase, you may have a case for challenging the fee because you were told the fee was for a service – checking the suitability of the buyer for independent retirement living, for example – but the service was never performed.

An example was provided on last week’s Dispatches programme on Channel Four (September 24). A McCarthy and Stone saleswoman at Argent Court in North London completely misled an undercover reporter posing as a potential buyer.

The site is being marketed by McCarthy and Stone, although the developer had already sold on the freehold to a Tchenguiz company.

The undercover reporter asks the saleswoman what the transfer fee is for, and she replies:

“The transfer fee is to cover the cost of solicitors, because whenever one of the properties is sold, we have to oversee the sale of it. We’re not involved with who it’s sold to really, but we have to check them out, because we have to make sure that they haven’t got dementia.”

Reporter: “Does that mean I have to be checked?”

Saleswoman: “No. I have to meet them. If I’ve got any inclination that you might have Alzheimer’s or dementia at all, then I would ask for a medical certificate.”

The landlord, who would benefit from the fee, made a statement to Dispatches:

“The assertion by the McCarthy and Stone employee that the transfer fee is for some form of medical check is simply wrong.”

The programme than asked for an opinion from Professor Christian Twigg-Flesner, professor of commercial Law at the University of Hull. He said: “The consumers are being told that money is being raised for a particular reason, and the money isn’t being used for that purpose at all. At this point, we are looking potentially at a misleading practice, because the consumer is being misled into paying over money for a particular purpose, and the money is never even used for that purpose. That’s clearly not acceptable.”

One of our supporters is already progressing such a case, and we will bring you news of this when it is concluded.  In the meantime, contact Carlex if you are aware of a similar challenge.  It is up to all of us to use the information we now have to challenge these pernicious fees.

Comments

  1. MICHAEL HOLLANDS says:

    You suggest when selling that one should state that the exit fee should be returned if a court rules it to be unlawful.
    Is there anything a purchaser of a property can do to get the Exit Fee clause scrubbed or at least do the same as the seller would do. ie get the clause deleted if a court rules it to be unlawful

    • Carlex advises people not to buy retirement leasehold property at all, as it is too problematical. Rent instead. However, if you must buy and you are buying at a new scheme, insisting the developer drop these clauses would be excellent. McCarthy and Stone had a policy of not enforcing exit fees. But that is not much reassurance as all developers cannot resist selling the freehold to the highest bidder, and the freeholder may insist on the fees being enforced. Retirement leasehold is very complex – in order to generate revenue.