Last Wednesday saw a session of Lord Best’s All Party Parliamentary Group on retirement housing and care.
Sebastian O’Kelly, trustee of Carlex / LKP, made the following points about private leasehold retirement housing to the APPG:
In part, the elderly are not downsizing to retirement housing because they think they will be cheated, and they have grounds to be cautious.
He referenced the two Office of Fair Trading investigations into retirement leasehold housing. One found exit fees on sale paid to the freeholder for no service whatsoever to be an “unfair contract term”, but did nothing about it.
The other OFT investigation found that Peverel, now renamed FirstPort, systematically cheated residents by handing lucrative contracts to its subsidiary Cirrus.
It got away with this scot-free, as did its then executives and two of the three stooge contractors, who simply went into administration and avoided fines.
Peverel was granted “leniency” for helping the OFT with its absurdly protracted inquiries and the only people threatened with criminal sanction were the pensioner whistleblowers, who were told by the OFT not to disclose the utterly feeble investigation to the press.
The full archive of this scandal is here
“There is a feeling in retirement leasehold that the bad guys always win,” Mr O’Kelly told the APPG.
He made other points:
“Why are retirement flats sold with 125 year leases? They won’t catch out the first owner or the second. But the third or fourth will have to extend the lease and if it goes below 82 years the value evaporates.
“Pensioners in their 80s and 90s do not want to think about extending leases, and the housebuilders who issued these leases know it.”
Mr O’Kelly acknowledged that McCarthy and Stone, since last summer, and PegasusLife are now issuing 999 and 1,000-year leases.
Then there are ground rents.
“Why are ground rents in retirement housing around £450? Because the housebuilder can get away with it.
“Ground rents of this level are seen in prime London. Why are they so high in retirement housing?
“If a housebuilder is issuing leases with high ground rents and only a 125 year lease, he is increasing the freehold value, which he can then sell off in addition to all the flats. It is the cherry on the cake.
“If you are lucky it will be bought by an insurance company; if you are unlucky it will be bought by a shark in the property auctions.”
Then there are re-sale values of retirement flats, which are frequently appalling.
Carlex referenced a case of earlier this week where after seven years an elderly woman living in a former McCarthy and Stone site in Stroud, Gloucestershire, is trying to sell her flat.
She bought it new seven years ago for £152,000 and had been trying to sell it for £125,000 since June last year. For the past month, she had reduced it to £100,000 and it was still not selling. What should she do, asked her daughter.
Every week Carlex is contacted with other similar cases. In this case, we advised the sellers to stick it out for a bit longer, as the family had already lost a third of its value.
General property prices in Stroud have increased markedly in this period.
The dismal re-sale values of retirement property – which have a serious impact on paying for further care, leaving aside family wealth erosion – is ignored or obfuscated by the retirement housing sector.
Until retirement properties track the local market, buying them is a lifestyle choice rather than a property investment with any likelihood of security.
Carlex pointed out that this aspect is ignored in many reports extolling downsizing.
The APPG also heard from delegates from PegasusLife, an upmarket retirement housing provider headed by Howard Phillips, a former chief executive of McCarthy and Stone.
To his credit, Mr Phillips ended exit fees (paid on sale for no service whatsoever) in McCarthy and Stone leases in 2008 just as the OFT began to investigate them. It was also a case of the company knowing the game was up.
The APPG was told that leases at Pegasus Life are for 1,000 years and that all sites have a management company where the residents own 49% of the shares.
Carlex welcomed these initiatives, although minority shareholders where a single shareholder owns 51% means they have little real power. Carlex also asked what were the typical ground rents at PegasusLife sites and whether freeholds were to be sold or retained. The representatives were not in a position to answer these points.
The APPG also heard from Nick Dykes, chief executive of the Belong group, a care provider rather than a housing provider.
It does sell some leasehold flats, but buys them back at the same price paid in a guaranteed re-purchase scheme. This is similar to the ExtraCare Charitable Trust, and is fine … in a period of very low inflation.
Carlex will consider the interesting submission from Belong in a separate article.
Carlex made the point that it is far more reassured by care providers providing housing than housebuilders offering care.
Care means management charges, and housebuilders have shown a consistent monetising approach to these over the past 30 years.
Hence the involvement of OFT, and courts.
The APPG also heard from residents at Ashfield, where the housing association Housing and Care 21 acknowledged failings and allowed pensioner residents to set up a company to run the site themselves.
That is discussed here