It is replacing the sublet fees, which are a percentage of either the purchase price or market value of a flat, with a one-off payment of £80 plus VAT from September 1.
This will be for the first two years of a flat’s rental, thereafter the percentage charges will apply – which Carlex believes is reasonable, as it will be a contribution by institutional investors to the contingency fund.
(Aviva, Barings and Grainger all have retirement flat assets, most managed by Girlings.)
The decision by McCarthy and Stone – full statement is below – is strongly welcomed by Carlex, which has long argued that these contingency fund payments are excessive.
They make subletting a retirement flat as expensive as renting out a Knightsbridge property in central London, and they often come at a time when family finances are stretched when a relative requires further care.
As well as these costs, the family must continue to pay service charges on the empty apartment and letting agent fees to find a tenant.
To then also have to pay a one per cent contribution into the contingency fund – typically £1,000 – £1,500 – is excessive, Carlex has argued.
Following a meeting between Carlex and Clive Fenton, the McCarthy and Stone CEO, this point has been accepted.
The sublet fees will be replaced from September 1 it with a standard £80 plus VAT administration charge to process the tenancy.
This sum is in line with the Office of Fair Trading subletting fees (which do not go into the contingency fund) agreed with other freeholders.
The second largest private retirement builder Churchill last week told Carlex it would consider the McCarthy and Stone initiative.
This initiative by McCarthy and Stone is a very welcome and positive step.
The issue has been highlighted by a number of families in recent months.
In July Dawn Rundle, whose family own a retirement flat at Marina Court, in Newquay, was charged £625 to sublet, which was actually a reduction to one month rental of the flat.
This is a site where McCarthy and Stone is the freeholder.
But high payments into the contingency funds are still made at sites where the Tchenguiz Family Trust is the freeholder.
After the Office of Fair Trading, an agreement was made in September 2012 that “where the terms of an existing lease give it [the Tchenguiz Family Trust freehold companies] discretion to waive the contingency fund fee of one per cent of the open market value payable upon each sub-letting, it would instead charge a fee equivalent to one month’s rent (in accordance with the waiver) for each sub-let by way of an assured shorthold tenancy agreement”.
The full agreement with the OFT can be read here
Unfortunately, some leases did not allow the freeholder to reduce the contribution to the contingency fund.
This included the brand-new Gibson Court in Hinchley Wood, Surrey, an old McCarthy and Stone site that was rebuilt after a fire in September 2011 in which a resident died. More here
Last December, the Hay family were charged £2,500 to sublet their 97-year-old mother’s £250,000 flat.
Mrs Hay did not wish to return to the site after the fire, and required further care.
£2,500 was an extraordinarily high sum to pay for subletting, particularly for a new site that should not require any contingencies for some years.
It opened the very real possibility that the Hays could rent out the flat at significant financial loss.
But the Tchenguiz Family Trust said it could not waive the £2,500 fee, although as a “gesture of goodwill” it would accept four staged payments of £625.
Whether the Tchenguiz Family Trust had discretion to reduce or waive the fees, which were not to its profit, was not explored and the correspondence, copied to several MPs, demonstrates that there was no interest in engaging with this issue.
It may have been possible that the Hay family could have been spared this expense had the Gibson Court residents’ association given any indication that it agreed to accept a reduction to the contingency fund.
To avoid the threat of legal action, the Hays paid up.
The new policy of McCarthy and Stone on sublet fees to the contingency fund
What is our position on subletting?
We feel it is important that our customers do not face any unexpected financial burdens in their new home resulting from, for example, the need to undertake any major refurbishment or structural repairs on the development, which are issues that might have occurred in their previous property. Our customers purchase apartments from us because they want peace of mind and do not want to worry about maintenance.
In order to provide confidence that there is enough money available to help cover unexpected costs such as these, our service charge includes a regular charge that also covers the normal redecoration and replacement costs of items like furniture and carpets in the shared areas. This goes into a Contingency Fund, which is similar to a ‘sinking fund’. It is a specific fund kept in the development’s own bank account and is held in trust for the residents with its use restricted to the maintenance of that development. It is there for the benefit of all homeowners. Contingency Funds are essential for a sustainable development and the alternative is to have a higher service charge or leave homeowners liable to large and unexpected bills, as with their previous property.
In order to keep the weekly cost – and hence the service charge – to a minimum, the development’s specific Contingency Fund is topped up by a one-off charge of 1% of the resale price upon the sale of the apartment. Within our managed developments, there is also a 1% charge upon the rental of the apartment, although it has to-date been McCarthy & Stone’s policy to waive the payment of this 1% charge and substitute a month’s market rent in its place. We are aware of just 11 apartments that are being sublet in our managed portfolio in this way, so it is not a common occurrence. There may be others that we have not been told about, although it is a requirement of the lease to inform us, but the numbers are certainly not high.
Full details of the Contingency Fund are outlined in the lease and are repeated in the Property Information Pack (PIP) supplied to all homeowners and their solicitors before purchase. Further information about this charge can be provided by our Sales Consultant or House / Estate Manager if there are any queries during the sales process. These fees are communicated to potential customers in the leases and sales literature before completing a purchase, and the funds are held in trust for the benefit of the residents, not McCarthy & Stone. McCarthy & Stone is committed to a fully transparent communications process with all of our customers.
McCarthy & Stone has recently reviewed the requirement to pay the 1% fee upon the rental of a property as well as our policy of waiving the 1% fee and replacing it with a month’s rent. We have agreed that the 1% Contingency Fund charge on each rental in all new leases from 1 September 2014 will be removed for the first two years of the rental and replaced with a single administration fee of £80 plus VAT. The administration fee will be payable towards the cost of checking the proposed tenancy agreement and ascertaining that the incoming tenant meets the occupation criteria (age limit etc) for the development. This approach will also be adopted on historic developments where McCarthy & Stone is the landlord.