Nicola Charlton of Pinsent Masons, the law firm behind Out-Law.com, was commenting after an investigation by the Law Commission found that older people living in retirement properties were not always told about the fees, which were sometimes worth up to 30% of the property price on the sale of the property.
The Law Commission has recommended the creation of minimum standards and a new code of practice for the sector, along with better regulation. Event fees can help to offset the cost of the service charges payable to providers for shared facilities, security and on-site care; but can lead to significant unexpected fees if not properly communicated to residents. The Law Commission also found examples of "rogue" landlords charging unfair fees, such as for a carer moving in with a resident.
According to Nicola Charlton, "legal uncertainties", including over the status of event fees, "have in the past dissuaded developers from building the homes older people need and investors from providing the required funding".
"The legal status of event fees was in need of urgent clarification and the industry has welcomed the recommendations in the report," she said. "The recommendations will not only benefit the consumer but also the reputation of the industry, which has in recent years been criticised for charging vulnerable people unexpected and unfair fees."
"With the legal uncertainty around event fees removed or reduced, the retirement leasehold sector has estimated that there could be an additional £3.2 billion investment by private companies over the next ten years. This would enable a significant increase in the supply of much-needed specialist retirement housing leasehold properties," she said.
There are currently around 160,000 retirement properties of the type reviewed by the Law Commission in England and Wales. These homes are almost always sold on a 99-year 'leasehold', rather than freehold, basis; and many of the leases require the owner to pay a fee if certain events, such as sale, sub-letting or change of occupancy occur.
The Law Commission was asked to investigate these fees following an investigation by the then consumer protection regulator, the Office of Fair Trading (OFT), in 2013. Its investigation uncovered a number of potential issues with the fees, which in some cases were hidden in "complex" leases or levied in unexpected situations. In other cases, event fees were disclosed too late in the process for the consumer to take the fee into account.
The commission has not recommended that event fees be banned outright, as when used correctly they allow residents to defer part of the payment for services until they come to sell the property. Instead, it has recommended that the government develop a code of practice to limit the use of the fees. This code of practice should be supported by an amendment to the 2015 Consumer Rights Act, so that event fees would usually be unenforceable where the landlord was in breach of the code.
The Law Commission's recommendations would restrict the use of event fees to when the property is sold; or to certain cases of sub-letting, where the resident has died or where the property is no longer their primary home. Sub-letting and change of occupancy fees would be capped at no more than 10% each year of the total event fee for the sale, and change of occupancy fees could not be charged if the resident's partner or carer moved into the property.
Housing providers would also be required to provide standardised, transparent information at an early stage in the purchase process. This would include how much the fee is likely to be, an explanation of how the fee is calculated, who receives the fee and what the resident will receive in exchange. Event fee information would also have to be included in all adverts, and guidance and an online database should be developed for estate agents and consumers.
"We'd urge the government to crack down on rogue landlords by regulating the sector and making sure that before consumers sign on the dotted line, they have already been told exactly what's being provided for their money," said Stephen Lewis of the Law Commission.