The hidden costs of retirement leases

Clare Owen, Licensed Conveyancer at ORJ, explains some of the unexpected costs and potential stresses of retirement leases – and what you should watch out for.

Retirement properties can be an attractive option for people as they get older, but those entering into lease agreements should be wary of additional fees, covenants and provisions before they put pen to paper.

Retirement housing is aimed at older people, usually aged over 55 or 60. Most retirement housing is sold on a leasehold basis for a long period of time, for example 99 years or even 999 years.

Leaseholders have different rights to freeholders, with the landlord retaining some power over how the property is used. It can make your life easier in some ways, but it can also become a source of expense and frustration.

Retirement leases can be particularly complicated so it is essential that anyone entering into a new agreement seeks expert legal advice to ensure they are not stung by unforeseen charges.

Ground rent has been a hot topic for many years, with some landlords charging in excess of £300 a year. The good news is that, following public outcry, a new law means ground rent on newly-created leases in England and Wales has been reduced to zero. This became active for retirement housing from April 2023.

Reducing ground rents does, however, mean developers or operators need to find other ways of recovering additional costs for on-site health professionals and communal areas.

The main charges and potential problems to watch out for:

Service charges

Service charges on retirement housing could be a lot higher than on standard leasehold properties. In some cases, it could be as high as £10,000 per year.

This charge covers the cost of general upkeep of communal areas, repair and maintenance, the scheme manager, emergency alarm and management fees.

Even if you are comfortable with the service charge, it is a good idea to request details of costs over the last few years so you can see how it has increased over time. You should also ask for forecasts of how the charge will look in the future.

As a tenant, you have the right to request a detailed breakdown of how the service charge money has been spent. It is possible to challenge the reasonableness of the service charge at a Tribunal once receipts have been obtained.

Transfer and contingency fees

Transfer and contingency fees are usually payable on sale or transfer of a retirement lease. This is commonly 1% of the sale or market value. This can be 1% each for the transfer fee and contingency fee, though some properties can just have one of these fees in play.

These fees can also be payable if there is a change of occupancy – for example, if a new partner or carer moves in or if the property is sublet.

The fees are paid into a Reserve Fund to assit with future maintenance projects, but there can be a lack of transparency around calculations – and in some circumstances, the fee can be as high as 10 to 30%.

The Law Commission published a draft Code of Practice in 2016 to regulate the charging of transfer and contingency fees and to protect leaseholders from unfair or hidden charges. The Government committed to approving the Code, but has yet to do so.

Difficulties in selling

Due to high services charges, unpredictable increases and transfer fees, retirement housing is becoming increasingly difficult to sell. Some properties can also decline in value significantly and you may have to continue paying service charges while you go through the selling process.

There are also restrictions on who you can sell to. Most of these developments have clauses which state an occupier must be a certain age, usually 55 or above, and able to live independently. If an occupier’s health deteriorates and they require care or assistance, they may be asked by the landlord to vacate the property.

When buying such a property, the approval of the landlord will need to be obtained before you proceed. This usually involves producing identification to prove your age or meeting with the manager to undergo an interview to assess whether you fit the criteria.

If you are thinking about buying a retirement property, I’d offer two pieces of advice: research the management company to ensure they are reputable and experienced, and speak to a legal professional. It could save you thousands of pounds in the long run – and a lot of stress.

I’d be delighted to help. Email me on team@orj.co.uk or call 01785 223440.