More people each year are turning to specialist retirement homes. Typically, a resident will purchase a long lease for a capital sum but these long leases can also require the owner to pay “event fees” when certain events occur. These events will typically include sales, lettings and changes in occupancy of the home and are usually paid after the homeowner leaves the property.
These fees can come as a surprise to leaseholders and in March 2017, following consultation, the Law Commission published a report on event fees in retirement homes. Now, over two years later, the government has confirmed that it intends to implement most of the Law Commission’s recommendations. The two recommendations which the government wishes to explore further are: how best to establish an online database to provide information to prospective buyers; and succession rights for spouses and live-in carers to stay at a property, without payment of an event fee.
The Law Commission’s recommendations
In brief, the recommendations included:
- Limiting the circumstances in which fees can be charged to sales, subletting, and change of occupancy where the resident has died or the property is no longer the resident’s only or principle home. A resident’s partner or carer moving in would not trigger an event fee although on this point, the government has announced it wants to first consider the implications for both consumers and new supply.
- Capping the fees for subletting or changing occupancy. The cap would be no higher than 10% of the total event fee payable on the sale of a property.
- Requiring guidance to be issued by landlords at the beginning of a purchase to indicate the likely amount of the fee, how it is calculated, who receives it and what the resident will receive in exchange.
What does this mean for landlords?
Standardised, transparent information should remove the lack of clarity surrounding event fees. Maintaining the use of event fees, rather than banning them, will continue to allow the resident to defer payment and would preserve an essential part of the landlord’s economic model.
A further review of whether event fees should be triggered by spouses and carers moving in is welcome as it recognises the possibility that landlords might suffer losses by not being able to charge for items such as increased service and maintenance costs. This may put pressure on the communal services and facilities. Also, the prescribed cap may not reflect the landlord’s actual costs.
Hopefully, the government will complete its further review of the two outstanding issues within 2019 although a further consultation could delay any final legislation. Whatever the timescale, it is to be hoped that the new regime will be an important step in encouraging growth within this market.