Dear Claire – June 2017
28 / 06 / 2017
Perplexed by property law? Relax, Solicitor Claire Haynes is here to answer your most pressing questions…
Q: I am a developer planning to enter the retirement home sector as there is a large demand for specialist retirement properties. I will let the properties on long leases to the residents. I have heard that it is possible to charge the residents ‘event fees’ when there is a change in circumstances, for example if the resident’s carer moves in, if they sublet or re-mortgage and eventually on death when the property is sold. It could be a regular source of income, which I am keen to factor into my business plan. Are there any rules which dictate the amount I can charge and when? It sounds too good to be true.
A: Event fees, which are also sometimes called exit or transfer fees, are typically a deferred payment made at the end of a person’s period of occupation in a retirement property. They can be helpful for residents who are capital rich but income poor, as they can be used to reduce the service charge payable based on the idea of live there now, pay later.
There is currently much uncertainty on the law in this area. Terms in leases imposing event fees are potentially unfair contract terms but the position is not clear.
Event fees have attracted criticism as they can be used to exploit the elderly and vulnerable. In April 2017 the Law Commission issued a report on event fees in retirement properties which makes a number of recommendations:
- limit when an event fee can be charged to sale and on change of occupation only where the property is no longer the resident’s “only or principal” home;
- limit the amount that can be charged on subletting or a change of occupancy to 10% of the event fee payable on sale of the property;
- any event fees should be advertised clearly alongside the purchase price;
- residents should be given a standard key facts documents when they first view a property explaining how much fees are payable, when they are payable and to whom, giving worked examples; and
- residents should be given a choice to pay the fees up front when buying a property.
Event fees that catch ‘unexpected circumstances’ such as when a resident re-mortgages or a spouse, partner or carer moves in to the property were not viewed favourably.
If you comply with the Law Commission’s recommendations and long as you are fair and do not exploit the residents with a disproportionate fee, it should be possible to charge a reasonable fee on the occurrence of certain events.
The Law Commission has also recommended a new code of practice which can be enforced by consumers so we do expect some new legislation governing event fees to be brought in.
Wedlake Bell has a team of specialists who advise on the residential and care home sector. Please do get in touch with any queries in this area.