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Are retirement homes a rip off?

by | Aug 18, 2022 | Featured, News

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Retirement homes are often the last resort for elderly brits who have been financially strained or can no longer care for themselves. But despite being a much-needed service for the elderly, many retirement homes are plagued by scandal and corruption. Often, retirees are charged exorbitant amounts for services that are rarely, if ever, provided. Most seniors don’t have the resources to fight back, and are forced to either accept these exorbitant fees or find themselves homeless and in need of even more services.

A fresh study has revealed ‘abuse’ in retirement home costs.

The Law Commission recently completed a two-year investigation into the ‘event fees’ charged on retirement properties, which are triggered by an ‘event’ such as subletting the property. It warned of “major issues” with the way they are charged – and how they are hidden in the fine print. 

When older individuals purchase a retirement home, it is usually on a leasehold basis. My granddad lives in a wonderful building across the street from my parents. 

As with normal residential leasehold properties, there are a host of additional fees to worry about, and they come with all sorts of names – exit fees, transfer fees, contingency fees, etc. 

According to the Law Commission, they are also vulnerable to abuse. Its investigation discovered that these fees are often hidden in the fine print of complex lease documents or disclosed too late in the process for the buyer to account for them. 

Poor timing 

There is also a significant issue about exactly when these fees are charged, which the Law Commission said may come as a “surprise” to the owner because of how broadly drafted the fee is. 

It is natural to expect an event fee to be levied when you sell the property, for example. 

But the Law Commission’s investigation found numerous examples of the fee being charged when the property was inherited or mortgaged, when a spouse, partner or carer moved in, or when the normal resident moved out. 

These costs aren’t cheap either; they can amount to up to 30% of the property’s worth! 

What irritates me the most about all of this is that it is nothing new. Back in 2013 the Office of Fair Trading (remember them?) also looked into the issue, and found the exact same problems, suggesting that a number of the fees being charged were unfair and actually a breach of the Unfair Terms in Consumer Contracts Regulations. 

Yet, four years later, the same costs are being levied, squeezing the pockets of the elderly. 

reducing the availability of retirement homes 

These fees are bad enough from a moral standpoint, but some believe they are preventing more retirement homes from being built. 

Nicola Charlton of law firm Pinsent Masons suggested that the “legal uncertainties” 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”. 

Now that the Law Commission has published its views on the fees, this uncertainty is removed, which could possibly mean extra investment of as much as £3.2 billion into new – and badly needed – specialist retirement housing. 

There are currently only about 160,000 retirement homes like those examined by the Law Commission, which is simply insufficient. 

Is regulation the solution? 

The Law Commission has declined to call for event fees to be scrapped entirely, as it argues that they can actually make specialist housing affordable precisely because some of the payments for services are essentially deferred until the property is sold. 

It prefers regulation through the implementation of a new code of practice overseen by the Department for Communities and Local Government. 

This code of practice would place restrictions on when and how much fees might be levied. 

It would also impose “stringent obligations” on landlords to provide transparent information early in the process about which fees may be charged. 

The industry has reacted well to this concept. A statement from the Associated Retirement Community Operators said: “It’s been long overdue, and we believe that an event fee that has not been transparently disclosed should not be charged. 

In other countries, event fees are a well-established mechanism that can enable older people to use their housing equity to ‘enjoy now and pay later’, for example by reducing their service charge or deferring some of the costs of building communal facilities.” 

However, the Campaign Against Retirement Leasehold Exploitation (CARLEX) described the report as “tokenistic”, adding: “Pensioners and their families who feel they have been blatantly cheated in retirement housing have reason to feel let down.” 

What to think about when purchasing a retirement home 

Clearly, if you are thinking about buying a retirement property it pays to look carefully through the contracts to ensure you fully understand what fees you are likely to have to pay and precisely when they may be charged. 

It is not only the event fees that must be considered; there will also be service charges to account for in order to maintain and upkeep the property. These are frequently higher than service charges on a typical property, as retirement homes typically include more services. 

According to critics, managing agents and maintenance firms are frequently offshoots of the freeholder, implying that there is no actual competition for the role, resulting in exorbitant overcharging. 

It’s also a good idea to do some resale value research. Have comparable retirement residences in the region been resold for a reasonable price? 

These properties can be more difficult to sell than a normal home, while you will want to check the small print of your contract to ensure you are free to choose who you market the property through – some freeholders insist that you resell it through their own company, with a higher fee to pay than selling through an estate agent. 

Given the difficulty of reselling a retirement home, you may decide to rent instead.