This briefing paper explains action taken by the Office of Fair Trading and the Law Commission to investigate fees charged by managing agents or freeholders when a leasehold owner of a retirement flat wants to sell or rent out their home. These fees are often referred to as 'exit' or 'event' fees.Jump to full report >>
Companies that own or manage specialist retirement properties, usually flats owned on a long leasehold basis, often include a clause in their lease agreements requiring owners to pay an "exit” or “transfer” fee when they wish to sell or rent out their homes. The Law Commission notes that payment of these fees is usually triggered by an event (such as resale or sub-letting) and for this reason now refers to them collectively as “event fees.” An event fee, according to the Law Commission “can be up to 30% of the property’s resale price.”
Owners of retirement properties that are subject to event fees have questioned whether the practice is lawful. There has been a tendency for owners to be ‘surprised’ by event fees – they are unaware of the requirement to pay these fees until an event triggering payment occurs. The issue has attracted a good deal of media attention.
Between 2009 and 2013 the Office of Fair Trading (OFT), carried out an investigation into event fees. The OFT closed on 1 April 2014 and its responsibilities passed to a number of different organisations, including the Competition and Markets Authority (CMA) and the Financial Conduct Authority.
Overall, the OFT concluded that “transfer fee terms, as typically currently drafted, are likely to constitute unfair terms under the UTCCRs [Unfair Terms in Consumer Contracts Regulations].” However, the OFT decided not to test this proposition in the courts as a number of companies voluntarily agreed to drop event fees and make changes to enforcement practices. The OFT did recommend some further policy and legislative changes.
The Law Commission announced that it had started work in October 2014 on the Transfer of Title and Change of Occupancy Fees in Leaseholds project, as referred by the Department of Communities and Local Government. The project was subsequently renamed “Event Fees in Retirement Properties”. The Law Commission conducted a consultation exercise between 29 October 2015 and 29 January 2016. A progress report was published in June 2016 which recommended a detailed code of practice for event fees to be backed up by legislation. It was envisaged that event fees which did not comply with the code of practice would be unenforceable. A draft Code was published and consulted on in September 2016.
The Law Commission published its final report on 31 March 2017. The Commission found some “major problems” with event fees but stopped short of recommending their abolition. Instead, the Commission recommended that event fees should be subject to regulation backed up by a binding code of practice. The Government’s response is awaited.
On 28 March 2019, the Government announced that it will implement the majority of the recommendations contained in the Law Commission’s 2017 report Event Fees in Retirement Housing.
Information on wider issues with leasehold housing and Government plans for reform can be found in Library briefing paper: Leasehold and commonhold reform.
Commons Briefing papers SN05994
Author: Wendy Wilson