In this month’s ABC+D Magazine, Patrick Gloyens, partner and head of retirement housing at Michelmores, examines the issues currently facing potential funders, developers and operators of CCRCs in the UK.
It is usual, in specialist owner-occupied retirement housing, for there to be a fee payable to the landlord if the owner ceases to occupy the property.
These fees go under a variety of names: Exit Fees, Departure Fees, Deferred Management Fee, Contingency Fund Fee and Transfer Fee, among others. They can be payable in a wide variety of circumstances; not just on sale but also on inheritance, surrender, equity release and sub-letting.
The range of fees is wide – currently anywhere between 1 and 30% of the value of the property. Different businesses give different reasons for charging these fees and, sometimes, the fee is not linked to any service.
In other cases, it is used to recover part of the cost of providing the extensive on-site communal and support services and/or help fund what can be very high service charges. In some cases, part is categorised as an agency fee for handling the sale or pre-emption; part may also cover some of the administrative costs involved.
In many cases, the exit fee is a combination of some or all of these things and is an increasingly important part of the developers’ economic model. In 2013 the OFT investigated certain types of these fees.
As might be expected, they were approaching these payments as consumer champions and their conclusion was clear. The terms relating to exit fees could be unfair and a breach of the Unfair Terms in Consumer Contracts Regulations of 1999.
The OFT considered the various arguments put forward by developers but concluded that the model was not optimal for consumers. They secured undertakings from many landlords to cease enforcing a transfer fee, or replace it with a flat fee or to make other changes to mitigate ‘the most egregious unfairness of their respective fee terms’.
They wanted the business model to cease entirely in newly built developments (unless the fees reflected the cost of an actual service). The OFT did not consider in any detail either retirement homes or contingency fund fees – which it considered analogous to sinking or reserve funds – although it took a side-swipe at both in passing. It recommended a number of principles which it felt should be applied to existing developments as follows:
The fee should be payable on final sale only – not on other events; it should be certain; it should not be a percentage of an assessed open market value; it should be transparent from the outset with details provided in a Purchaser’s Information Pack. Finally, legislative reform was recommended.
As a result, the Law Commission was asked to review and is hoping to report to the Government in July. The Commission’s remit is wide: it looks at the policy issues involved not just in housing an ageing population but in housing generally.
The argument goes like this: The UK population is ageing. Every time an older person downsizes, it frees a house for a growing family which, in turn, can free a house for a first time buyer. So increased specialist retirement housing benefits all those seeking a home. However, there are many deterrents for older people, the most common being the lack of suitable properties. They explain that the economics of developing retirement housing depends not only on the initial sale price but also other potential income streams – for care provision, ground rent and event fees (a term they use to cover all the different types of fees referred to previously). They conclude that it is important not to interfere with those income streams in a way which discourages further supply.
Another deterrent factor, highlighted by the APPG, is the potential service charge costs, which can be very high. More sophisticated arrangements, as in some other countries, for deferring some service charges until the property is sold should be more widely available. In particular, those who are capital rich and income poor may welcome the opportunity to defer some parts of the purchase price or the service charge or both.
It concludes that its aim is to encourage this nervous, fledging market to develop – and that involves an adequate income stream for developers. The proposed solution is much greater transparency – not just in the interests of fairness – but because lack of transparency could put back the whole market.
In fact, this is not inconsistent with the fundamental findings of the OFT but the conclusions of each report are different. Both are rightly concerned with protecting the consumer from hidden, unexpected, variable and uncertain fees. The Law Commission report looks beyond that, to the need to encourage this market which benefits to both residents and society at large.
This is an impressive, well researched and carefully considered report. It is designed both to protect the consumer, to encourage growth of a potentially very large market and to answer a social need. It is good news for developers, funders and occupiers.
Lifestyle Flooring have taken a look at the essential difference between engineered wood flooring and hardwood flooring, with the intention of it helping people make informed decisions.Posted in Articles, Building Industry News, Building Products & Structures, Floors, Posts, Research & Materials Testing, Timber Buildings and Timber Products, Wooden products
Aggregate Industries was recently chosen to supply its SuperColour Ultra asphalt solutions to a new visitor centre in Nottinghamshire.Posted in Articles, Building Industry News, Building Products & Structures, Civil Engineering, Hard Landscaping & Walkways, Landscaping, Posts
Claire Miller has been announced as a new Marketing Director for the windows division at global polymer solutions provider REHAU.Posted in Articles, Building Industry News, Building Products & Structures, Posts, Recruitment, Windows
Closer collaboration between RCM, SPSenvirowall and SPS Facades will see the sister companies jointly exhibiting at Futurebuild 2019.Posted in Articles, Building Industry Events, Building Industry News, Building Products & Structures, Cladding, Exhibitions and Conferences, Facades, Posts, Walls