April 23, 2017

You DO have to pay sublet fees annually in retirement leasehold

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The feeble deal between the Office of Fair Trading and the Tchenguiz Family Trust over retirement leasehold exit and subletting fees – the one in July 2012 where the OFT said they were an unfair contract but, no, it was not going to do anything about them – has been clarified to Carlex today.

It had been our assumption that subletting consent fees applied per sublet and did not have to be renewed annually.

That is not the case: they do.

Somewhere we are sure we have seen an OFT email stating that the fees did not have to be renewed annually, and if any Carlex reader has this, please forward.

But the correct position was explained by the OFT today:

Here is the full letter explaining the position on subletting fees.

Thank you for your email of 9 October seeking clarification of the undertaking given to the OFT by Fairhold Homes Limited and associated group companies (‘Fairhold’) in relation to transfer fees payable upon sub-letting.

 Under the terms of the leases we reviewed, a transfer fee of one per cent of the open market value of the property is payable to the landlord on each sub-letting. However, Fairhold undertook to accept a reduced flat transfer fee on subletting. Specifically, paragraph 2d of Schedule 1 of the undertaking, which came into effect on 30 July 2012.

(see ‘related documents’ at http://www.oft.gov.uk/OFTwork/consumer-enforcement/consumer-enforcement-completed/fairhold/) , provides that Fairhold shall:

 ‘calculate the Transfer Fee arising on a sub-lease (by way of an assured shorthold tenancy) of an Existing Lease as being the Fixed Subletting Fee. For the avoidance of doubt:

(i) if a sub-lease by way of assured shorthold tenancy continues beyond its fixed term period, a further Fixed Subletting Fee will become payable (even if no further formal assured shorthold tenancy is entered into); and

(ii) if a sub-lease by way of assured shorthold tenancy is entered into for a fixed term period of greater than one year, a further Fixed Subletting Fee will become payable at the start of each subsequent year that the assured shorthold tenancy continues’;

The Fixed Subletting Fee was £85 for the calendar year beginning 1 January 2012, and for subsequent calendar years it is adjusted by the retail price index for that previous calendar year.

As such, if a sub-lease by way of assured shorthold tenancy is entered into for a fixed term period of greater than one year, a further fixed subletting fee will become payable each subsequent year that the tenancy continues. For example, assuming an assured shorthold tenancy entered into for a fixed term period of 2 years, £85 will be payable upfront at the start of the tenancy, with a further £85 payable at the start of the second year of the tenancy.

 For clarity, the position is different in relation to contingency fund fees payable upon sub-letting where waiver of the contingency fund fee is permitted by the terms of the lease. Where it has discretion under a lease, Fairhold undertook to waive the separate contingency fund fee of one per cent of the open market value payable upon sub-letting and instead charge a fee equivalent to one month’s rent for each sub-let. Specifically, paragraph 2e of Schedule 1 of the undertaking provides that Fairhold shall:

 ‘in relation to leases where waiver of the Contingency Fund Fee is permitted by the terms of the lease, calculate the Contingency Fund Fee arising on a sub-lease by way of an assured shorthold tenancy as being a sum equal to the average of the rent payable under the sub-lease for a one-month period (or the open market rent that would be paid for a one-month period, if greater), provided that this shall not exceed the sum that would otherwise have been payable under the Existing Lease.  For the avoidance of doubt:

(i) where Fairhold has discretion under the terms of the lease permitting waiver of the Contingency Fund Fee, the Contingency Fund Fee arising on a sub-lease by way of an assured shorthold tenancy (i.e. a sum equal to the average of the rent payable under the sub-lease for a one-month period (or the open market rent that would be paid for a one-month period, if greater)) will only be applied once for each sub-lease (regardless of the fixed term period of the assured shorthold tenancy or whether the sub-tenant “rolls over” at the end of the fixed term);

I hope that this clarifies the position.

 

Comments

  1. Michael Epstein says:

    Now I may not understand this properly. Does it not remain the case that a freeholder should only be able to recover their reasonable costs for registering a sub-let?
    That being the case, even if £85 has been deemed reasonable to register the sub-let and the OFT deems it reasonable that £85 should be paid every year, this does not make sense.
    Clearly, more administration is required to register the initial sub-let, rather than a continuation of the same agreement. At the very least the continuation fee should be less than the initial fee. Any “perceived” costs must be less.

  2. michael hollands says:

    The OFT Report states the following on page45 Item 6.7
    “A flat fee of £85 (to be adjusted in future years by inflation) will be charged for subletting, replacing the current transfer fee of one percent of the open market value,
    The one percent current transfer fee is a one off fee which is charged on the sale of a property.”
    Therefore the £85 charge which replaces it must also be a one off charge.
    There is nothing to state that it is any different.

  3. michael hollands says:

    the £85 fee would be charged each time the flat is sublet ,so there could be an annual charge if the tennants were to change annually. It could even work out more than once a year.
    But with it being £85 for each let then for a 10year let it would remain at one charge of £85
    It works exactly the same as the Exit Fees which it replaces.

    • I am not sure you are right,

      This is extreme lawyer-ese. One point I will raise with the OFT is that tenancies in retirement leasehold can be open ended rather than for fixed periods. So if you have a rolling tenancy for six months say, and it lasts two and a half years, is that one sublet fee or three?

      I shall inquire.

      I shall also ask what exactly “OFT own-initiative investigation” means, beyond puffing up the OFT to its Whitehall paymasters.

  4. On a separate point, Carlex was astonished to see that this OFT inquiry is described as “OFT own-initiative investigation”.

    Own initiative?

    Those with long memories with emit hollow laugh at that assertion: “reluctant, indolent and protracted investigation, with a feeble outcome” would be a fair assessment.

  5. michael hollands says:

    Why complicate the issue.
    The OFT Report clearly states that te £85 charge on subletting replaces the previous arrangement which was to charge the Exit Fee. The Exit Fee was a one off charge on the sale of the property ,not an annual charge. Nowhere does it state that the £85 has to be paid annually.
    Fairhold also agreed to provide prospective purchasers with details of all possible charges ,with working examples, so that they would know exactly what they were agreeing to.
    Does anyone have a copy of this information, which should set out clearly the charges for subletting.
    The OFT have a habit of favouring those they are investigating, as they are doing now in this case.
    They also found Exit Fees to be obnoxious but still allowed them to be charged..
    They decided those found guilty of price fixing are given leniency even if they are exposed before they admit guilt.
    If the OFT report has to be adhered to or has any legal basis then the £85 is a one off charge for each sublet.

  6. Michael Epstein says:

    Can anybody show me where it says a fixed term tenancy (which a sub-let is) only applies for one year?
    I note that Girlings offer fixed term tenancies of up to 5 years, or lifetime assured tenancies.
    How could they do this if a tenancy agreement was only valid for one year?

  7. Michael Epstein says:

    Another aspect of any sub-let fee demand is to ascertain who would be entitled to receive them?.
    So if your freeholder is Proxima but the demand comes from E&M, proof needs to be provided that E&M are contracted to collect sub-let fees on behalf of the freeholder.
    Without such assurance, you only have an obligation to pay the freeholder and not anyone acting as managing agent.
    Of course it should be remembered that because the OFT has done a deal with Peverel, does not take away your rights at LVT to challenge. The agreement over sub-let fees does not mean they are justified, merely that the OFT will not prosecute over them.

  8. Here is the link to Lands Upper Tribunal judgement determined at 40 pds +VAT.

    http://www.landstribunal.gov.uk/judgmentfiles/j823/LRX-33-34-76-102-2011.pdf

    The OFT should bring their figure down to 40 pds +VAT to align with the UTT ( Upper Tier Tribunal of the Justice Ministry )

  9. Michael Epstein says:

    As evidenced in LON/00/AR/LAC/2011/0021 Linton V Proxima, sublet guidelines were issued by Proxima
    which included a sublet price plan.
    Standard Consent for each and every new letting £95.
    Registration for every new tenant £95
    Granting existing tenant a new term £45
    Global 5 year sublet license £350.
    It should be remembered that after the agreement with the OFT the price was reduced to £85.
    However in this LVT case Proxima claimed a £135 fee for granting permission and registration for the sublet. This was upheld by the LVT. Though other LVT’s have ruled that the payment should be £40,it is possible the case against the £135 charge was weakened because the property was sublet without the freeholders knowledge(please note it is important leaseholders act correctly)
    What is of great importance though is the implications of the final judgement, especially in light of what the OFT is claiming.
    The fee sought of £135 is in our opinion a reasonable amount to charge for the granting of consent for a subletting and the registration of the subletting and is payable on each new letting for which consent and registration is required under the terms of the lease, BUT WE DO NOT CONSIDER IT REASONABLE TO MAKE ANY FURTHER CHARGE WHEN AN APPROVED TENANT IS GRANTED A LEASE RENEWAL OR HOLDS OVER ON THE EXISTING AGREEMENT, AS THAT ALL THE MANAGING AGENT NEEDS TO KNOW IN SUCH CIRCUMSTANCES IS THAT THE SAME TENANT IS STILL IN THE PROPERTY.

  10. Lease terms may be different for each block of flats and leaseholders are only required to pay according to the provisions inside their particular lease. So if the lease requires you to pay a notice fee for registration of subletting- say of not less than 30 pds, then 31 pds is sufficient and satisfies the lease terms for both parties- Lessor and Lessee .

    These lease terms are inserted by the builder and solicitor when selling their property under leasehold title. Since they have to sell a finished property complying to buildings regulations and safety standards , they could well sell the properties without any subsequent charges payable by the leaseholders but they deliberately insert these extra payments provisions into the lease to boost the value of the freehold title when selling off to ground rent investor companies.

    Our new Housing Minister should closely examine the operation of Proxima GR Properties and its associate Estates and Management Ltd.

    Do the above charge rates appear in anyone’s lease ? I have not heard of any E& W lease specifically worded to include a clause requiring payment of 350 pds for sublet licence.

    If not the OFT should demand Proxima to withdraw the charges or file a complaint with Companies House put them into Administration and out of business.