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.