Retirement living event fees
In October this year, the Law Commission issued a consultation on a draft Code of Practice in respect of event fees. Event fees are also known as exit or deferred management fees and are payable on a change of ownership or occupancy in retirement housing leases.
Since 2013, when the Office of Fair Trading report cast doubt on the validity of charging these fees, there has been significant sector debate, culminating in the current consultation. The Law Commission found a key problem to be compliance with existing consumer protection law.
The Law Commission is not in favour of banning the charging of these fees, but wants to see them charged only where leaseholders are fully informed before purchase of the nature of the charges. Used fairly, they can provide a means for people to access retirement housing (with the health and wellbeing benefits such housing brings) on a "buy now, pay later" model. There is a huge amount of interest in this sector from investors, funders, developers and others and clarifying the ability to use event fee structures to support financial models is seen as an important step in allowing the sector to grow.
The proposed Code of Practice is intended to link compliance with the Code to consumer rights law, with the effect that not complying with the Code will render an event fee unenforceable against the leaseholder. These proposals can be achieved without primary legislation.
The principles behind the Code are two fold – first, to provide protection to consumers to prevent any unfair or misleading practices around how event fees are calculated or charged and secondly, to ensure operators within the sector have certainty and confidence in the enforceability of their event fee provisions. Many operators within the sector already uphold these principles (for example through compliance with the ARCO Consumer Code) but a binding Code of Practice will entrench these goals and create a level playing field. The information disclosure requirements of the Code will have to be complied with on the initial sale (and later assignments) of new leases and the assignment of leases.
Although we commend the aims of the Code of Practice there are some legal intricacies which we have raised in our response to the Law Commission's consultation. These centre on:
- ensuring that the Code can in practice be complied with on assignments of existing leases. These leases inevitably have not anticipated the requirements of the Code but this should not inadvertently prevent event fees from being charged if they are properly disclosed.
- the circumstances in which compliance with the Code would need to be evidenced for due diligence where portfolios of units are being sold;
- ensuring the Code cannot be avoided by operators through any technical structuring mechanism.
We expect to see the final Code published shortly, with the relevant legal changes in force from April 2017. It is hoped that the changes will bring clarity to the sector as to how and when event fees can lawfully be charged - both to protect consumers and to ensure certainty of enforceability for operators.