BATTLE OVER HOME FEES

Companies that run retirement housing developments could be forced to stop charging residents an ‘exit fee’ when they sell their home. The Office of Fair Trading (OFT) has asked all the major providers of these homes in England and Wales for details of their charges. It says the 26 firms cover 80% of the 105,000 retirement homes.

Exit fees – or ‘transfer charges’ – start at 1% of the sale price but some firms charge 10% or more to those who have lived in the property for some years. The OFT is investigating whether the fees are ‘unfair’ under regulations which are intended to protect consumers from terms in contracts which consumer have little choice but to accept even though they favour the other party.

Earlier this year the OFT used these Unfair Terms in Consumer Contracts Regulations 1999 to persuade retirement home developer McCarthy & Stone to remove exit fees from new leases and not enforce them when existing residents – or their heirs – sold a flat in its developments. The OFT told the firm the fee was unfair under the Regulations and therefore could not be enforced if residents refused to pay.

However, almost all McCarthy & Stone retirement developments have been sold to companies owned by the biggest operator of retirement homes in the UK CBG Residential. Chief Executive Bill Proctor told Saga that the OFT action is “unfounded. I believe these terms are fair.” He confirmed that he had no intention of waiving the fees unless the courts upheld the OFT view. He also said the fee – which is normally 1% but can be higher in some CBG developments – was clearly set out in the lease which residents had signed with legal advice and was not an issue with residents.

At least one Saga reader, though, has objected to exit fees – in his case much higher charges levied by a different company. Ken Hannaford and his wife Doreen – both in their mid seventies – live in a four bedroom house in Surrey. They are looking for a smaller home partly because the garden is getting too much for them but decided the cost of exit fees was so great they would not buy a retirement home.

“We were put off by the fact that we would have to shell out something like £20,000 if we stayed a couple of years and £60,000 if we stayed there for a few years. We don’t see why we should make them a present of up to £60,000 when we go.”

One of the three developments which Ken and Doreen looked at belongs to an independent company called Retirement Villages which is not part of CBG Residential. It charges between £3,600 and £5,500 a year for services, maintenance, ground rent and 24 hour staff presence on site. And there is an ‘assignment fee’ of up to 12.5% when a property is sold. On a home which fetched £400,000 that could mean £50,000 had to be paid to the company.

Chief Executive Jon Gooding says the high exit fees made by his developments are different from the 1% charged by other retirement housing schemes.

“In Retirement Villages a central clubhouse is standard with restaurant, bar, function room, treatment and medical facilities. Our homes sell for the same price as a flat in other developments without these facilities. The 12.5% you pay at the end is the fee for those extra services. The total consideration for the property is the purchase price you pay at the start and the money you pay when you leave. If we did not have the assignment fee we could not justify our business model.”

A similar point was made by Vincent Tchenguiz, a property magnate whose family trust is the ultimate owner of CBG Residential. His companies bought about half the homes it owns in 2007 and bought the rest from McCarthy and Stone after that. He says the price he paid reflected the expectation of getting the 1% fee when the residents sold their home.

“We bought a freehold that had transfer fees – we paid more money than for one without.”

In other words the presence of the fee in the leases with residents was reflected in the price he paid. He also said that “each development has a tremendous amount of subsidy as well – they get the manager’s office, a guest room, resident’s lounge, laundry room, and free car parking.”

On top of any exit fee, residents also pay an annual fee to cover buildings insurance, gardening, maintenance and cleaning of the common areas and water. The charge will also provide what is called a ‘sinking fund’ to pay for future repairs, and an on site manager, though nowadays most homes only have a manager during working hours and a telephone help service at other times. But they still charge residents for the rent of the manager’s on-site accommodation. Some have been accused of charging double or even treble the market rent for similar accommodation in the area. CBG Residential stressed in a statement that these rents are set in the leases by the developer before it buys the freehold. “It is our policy to review any queries about rents as swiftly as possible” and claimed it had reduced them in several cases.

All these fees can add up to thousands of pounds a year just to live in a property that you have already bought. CBG told Saga its fees are typically about £1,800 a year but some are £3,000 before ground rent. By law compulsory charges to leaseholders for maintenance, insurance, repairs and management – including the rent of the manager’s accommodation – have to be ‘reasonable’. If residents consider them too high they can appeal to a Leasehold Valuation Tribunal and some have done so successfully. But for other services it can be difficult to establish whether a charge is ‘reasonable’ especially when it is provided by firms linked to the management company.

CBG’s developments are managed by an associated company called Peverel Management Services. It owns Kingsborough Insurance, a broker which provides buildings cover for all the properties, and Cirrus which provides them with the 24 hour telephone Careline.

Peverel Chief Executive Nigel Banister denied that this common ownership meant charges were higher than they should be. “That’s not the case. We need to be aware of what others are charging for that service. We don’t intend to charge at the lowest level, it is a premium service, but we would say it is a mid-range price. We get no complaints about Careline. It’s a service which we are rightly proud of.” And he insisted that Kingsborough provided high quality insurance also at a market price.

In some retirement home developments a majority of leaseholders have voted to form a Right To Manage Company and taken over the management of the property. All charges for maintenance, repairs and the provision of 24 hour help become the responsibility of the association and, ultimately, the residents. It is a major step which many retired people are reluctant to take.

Don Heady runs a campaigning organisation called Carlex (Campaign Against Retirement Leasehold Exploitation) which advises people who think their charges may be excessive. He told Saga Magazine that using the right to manage rules may cause its own problems.

“It can create conflict between residents. It gives power to the committee and they may not realise the lowest bid is not always the best to take. So charges just go up again later. And most people just want lower charges.”

Leaseholders also have the right to buy the freehold off the landlord. But that can be even more complex and expensive.

Anyone considering buying a retirement home should get their solicitor to set out clearly the annual charges and exit fees. No-one should sign a lease unless they are happy with the total cost and what they get for it. Residents who feel their charges are too high should complain to the management company. If that does not work they can appeal to the Leasehold and Valuation Tribunal. There will be a fee and the Tribunal can order the losing side to contribute to the winner’s costs.

Further information
www.carlex.co.uk has information and a bulletin board to share experiences.
The Leasehold Advisory Service offers free independent help with all problems relating to leasehold properties www.lease-advice.org or call 020 7374 5380.

December 2009