Retirement housing issues aren’t something we cover much on NL, but in late December 2015, there were two interesting** developments.
By way of background, many retirement properties/retirement villages sell the flats/bungalows/dwellings on long leases. Those leases commonly provide for “event fees”, i.e. obligations to make (substantial) payments when certain events occur. By far the most common is a fee payable on assignment of the lease. Now, in itself, that isn’t necessarily a bad thing; rather, it depends on what the money is used for. So, in some developments, these event fees are used to top up the service charge/reserve fund accounts, thus, in effect, allowing for subsidised service charges during the period of ownership. In others, however, the money is retained by the freeholder and is nothing more than an additional income stream.
First development
Now, there isn’t really very much regulation of these charges, which is why the Law Commission is consulting on the issue (paper here – response date January 29, 2016). It’s a very interesting consultation paper. Conveyancing solicitors don’t come out of it well as very few seem to pick up on these fees (and there is a slightly worrying comment about how much conveyancing is done by paralegals – I know that is what happens, but that doesn’t seem to me to excuse poor service). Developers are criticised for being somewhat less than transparent, and the (lack of) any meaningful remedies under either L&T law or consumer protection law are also discussed. If this is an area you work in, then I’d urge you to respond.
Second development
Following hot on the heels of the Law Commission report and, in many respects, making the point that there is very little protection against event fees is Burrell and others v Helical (Bramshott Place) Ltd [2015] EWHC 3727 (Ch). The applicants were current and former leaseholders at a retirement village; the respondent was the freeholder. The leases (in effect) prohibited assignment unless the assignee paid a sum to the freehold, such sum calculated as a percentage of the market value, i.e. a classic “event fee”.
The leaseholders took various objections to this fee, but, for present purposes, only one objection matters. They argued that (a) the fee was a deferred contribution to the purchase price; (b) as such, the deferral amounted to the provision of credit; and, (c) because the respondent did not have a consumer credit licence (CCA 1974), the agreement was unenforceable.
The freeholder successfully applied for summary judgment. There were two problems for the leaseholders. First, it was impossible to say that this was a deferred contribution to the purchase price; the fee only arose if there was an assignment (which might never happen – unlikely, but possible). Secondly, the payment was made by the assignee, i.e. the incoming leaseholder.
The leaseholders had a second argument, based in the unfair terms legislation, but that was not part of the present application (‘tho the issue is discussed in the Law Com paper and, frankly, it doesn’t look good for the leaseholders).
- With apologies to Pulp
** No, honestly.
Glad the subject of “event fees” is being aired. As you rightly point out they can work well when used to contribute to sinking funds, but are also exploited by unscrupulous landlords as an additional income stream. I think they were originally introduced by McCarthy & Stone which is why they only seem to crop up in retirement housing. McCarthy & Stone gave undertakings to the old OFT who also pursued a number of other companies in the sector. Sadly, the Law Commision seem to be opening the door to the re-introduction of these fees for which, when they are paid to the landlord, the leaseholder receives no benefit.
Yes, I was surprised to see that the Law Com was so untroubled by these fees. They seem to accept that fees do not always have to relate to a service or benefit. For my part, I don’t see why that is right.
As a leaseholder I even have to pay the same 1% transfer fees each time I sublet the property. Money for old rope.
The Law Commission recommendations seem to me to be designed to keep the industry happy and thus continue to invest in retirement housing. The result is light-weight self-regulating codes of practice backed up by statutory regulations.
So my question is where does that leave leaseholders who want to pursue claims against unscrupulous landlords who continue to charge event fees to top up their reserve fund accounts and in particular those cases where there is no evidence of subsidy by the landlord (ie “nothing more than an additional income stream”)? Do the Unfair Terms Rules still apply ? If not what else is available in the toolkit?
BTW thanks for a nice clear and readable site, keep up the good work!
Steve,
The case that we mention in this post is running an Unfair Terms argument. That issue will, I imagine, come to trial, presumably in Spring/Summer this year (unless they settle).
J