Leasehold exit and sublet fees have been referred to the Law Commission, which will almost certainly be the end of them.
This means anyone selling or renting out a retirement or non-retirement flat should keep all documentation with a view to making a claim in two and half years time.
The decision is a volte face, as in July the Law Commission stated that it was not going to examine the issue. Possibly thanks are owed to DCLG staff for finally pushing through the issue.
Exit fees are paid on sale of most retirement leasehold properties, and were a widespread revenue earner introduced by McCarthy and Stone and its imitators, where it was set at one per cent.
In the fancier retirement sites, it can be up to 12 per cent. Retirement builders stopped the fees from 2008, and they do not apply to most leases after that date.
But the Law Commission is also examining sublet fees.
There is no reason at all why this examination should not spread beyond the retirement sector to the wider leasehold sector.
LKP is deluged with inquiries about subletting fees, often where freeholders and their managing agents are plucking figures from the air for a sublet consent.
The tribunals have dealt with countless cases, but there is no binding decision on what would be a fair sublet consent (most freeholders have to give consent to a sublet, usually followed by the word “such consent not to be unreasonably withheld”.
The retirement sector is further complicated because some sublet fees are contributions to the contingency fund and some are set at one per cent of market price.
One family at Gibson Court, in Hinchley Wood, Surrey had to pay a sublet fee of £2,500 into the contingency fund last January.
McCarthy and Stone this month dropped the one per cent contingency charge at all sites where it is the freeholder in favour of an £80 plus VAT fee. More here
Today’s statement from the Law Commission is in full below, or on its website here
Transfer of Title and Change of Occupancy Fees in Leaseholds
Status: Work will commence on this project in October 2014. We expect to publish a consultation paper in summer 2015 and make interim recommendations for reform in March 2016
The project was referred to the Law Commission by the Department for Communities and Local Government (DCLG) and will look at leasehold terms that oblige the lessee to pay a fee when title is transferred or where there is a change in occupancy. Concerns were raised with the Office of Fair Trading (OFT) about retirement home developments where these terms are chiefly to be found. The amount payable is usually calculated as a percentage of the sale price or the original purchase price. Terms may be triggered where the transfer of title is voluntary, for example on sale, or involuntary such as under a property transfer order. Change of occupancy terms may be widely drawn and can be triggered on more than one occasion over the lifetime of a lease, for example, where the lessee goes into hospital during spells of illness.
The OFT concluded that the terms were potentially unfair and that there was a lack of transparency, particularly in the sales material. The nature of the terms can be unclear and some appear to fall outside the existing regulatory regimes. As a result there may be no means by which a lessee can effectively challenge a term or the reasonableness of the sum involved. In response to the OFT’s report some landlords voluntarily entered into undertakings on the use of the terms. However, OFT also recommended that the Government should consider further measures, including legislative reform.
The project will consider the problems caused by terms in residential leases generally which require the lessee to pay a fee on a transfer of the title or change of occupancy, and in the retirement home sector and similar markets in particular.
We will look at how the current law addresses the problems that are identified and consider whether greater protection is needed for lessees. This may involve unfair terms legislation, landlord and tenant law and conveyancing procedure. We will also consider what the impact of any greater protection may be.
The project will be reviewed in March 2016 at which point we will make interim recommendations for reform. If the project continues we will make final recommendations in March 2017.
Related posts:
DCLG stakeholders hear of ‘calamitous’ Law Commission report on exit fees
Campaign against Residential Leasehold Exploitation and AgeUK reject Law Commission draft on exit fees
Important AgeUK event – exit fees
OFT cuts deal with Tchenguiz on leasehold retirement sub-letting fees, but exit fees on sale still stand
Housing minister urges transparency over retirement exit fees
AgeUK’s damning verdict on leasehold in CMA study
Erm the upper tribunal decision IS binding-the problem is that with the exception of leases commonly issued by ” big housebuilder” few have standard or similar wording and therefore the work and requirements can vary considerably. Similarly the enthusiasm for pursuing these vary as does the thoroughness- the dark empire has rightly been roundly criticized for preparing a stand spiel on ” what we do” and manifestly not doing that, as well as scoring an own goal with failing to read the lease that didn’t even require consent!
Older leases still make detailed requirements such as production of references guarantors and bank guarantees or accounts for self employed or company owners.
Any examination must therefore look at what is reasonably required and take into consideration that with the propensity for “buy let and hide” landlords consent is one of the few ways to find out what is going on. When service charges aren’t paid it is the good people who do pay that subsidise them and inevitably ending up having to any higher management fees and in many cases especially RMCs RTMS and RTE picking up legal costs of enforcement. Not to mention the quality of life when your block turns into a short let, holiday let, and housing benefit placements hell.
And no, yawn, this is not scaremongering, its the reason why a balance has to be struck for stopping “pips being squeaked” on renting landlords, protecting the broader interests of the block and as there is going to be some cost even if it is £50, that it falls on those renting not everyone.
I do not understand why non payment of service charge fees has anything to do with subletting a property. I think if owners are not going to pay the service charge fees then making them pay a subletting fee will not help the other leaseholders or am I missing something?
When I recently wrote to dispute the fee charged for subletting by Consort/Peveral their response was
Further to your request, please find below details of other rulings by the Tribunal (more recent that the case you have quoted below) where fees of £165 and £200 were adjudged reasonable. Please note that the Tribunal rules on the merits of individual cases; we are satisfied that our fees have been set at a reasonable rate.
Case – Crosspite Ltd v (1) Mahesh Sachdev (2) Seema Sachdev (3) Kamlesh Sachdev [2012] UKUT 321 (LC): £165 was ruled as a reasonable fee for sublet consent in late 2012.
Case – Hanover Gate Mansions – Case Ref LON-00BK-LAC-2013-0023 – £200 was ruled as a reasonable fee in 2013
Does this mean the £40 set is now redundant?.
You may want to read this very good analysis of the case by Amanda Gourlay
http://www.lawandlease.co.uk/2012/10/04/crosspite-ltd-v-1-mahesh-sachdev-2-seema-sachdev-3-kamlesh-sachdev-2012-ukut-321-lc/
If I have understood Amanda’s analysis correctly the reason the case seems to have failed in that the leaseholder did not provide evidence why the fee should be lower. Just what we need a judge deciding the precedent set by the UT can be ignored if someone fails to provide their evidence referring to that case in the lower court. When will these people understand its meant to be a Tribunal not a real court perhaps we should revert to having the decisions all in Latin..
You may want to point this out to the Peverel reliable legal team and see what they say. Provided you quote the relevant UT cases which set the rate at £40 ask Peverel why they think that case no longer applies.