In 2022 my brother bought a flat in a retirement complex built by McCarthy Stone. A year later he had to move to a care home because of cognitive difficulties, and I am now having to sell his flat on his behalf to pay for his care fees. The managing agent, FirstPort, is demanding 1% of the sale price without explanation. That’s on top of the approximately £7,000 annual service charge he has had to pay for the year he was no longer living there. Unfortunately, he signed up for the flat when his condition had just started to take effect, and I don’t believe he was aware of what he was agreeing to.
AS, London
What FirstPort is demanding is a transfer fee, also known as an “event” or “exit” fee. It bedevils contracts across the retirement sector and, in many cases, including your brother’s, is devised solely to ensure an income stream for the freeholder. None of the money is used for maintenance and service costs. It’s a similar, indefensible, money grab to that of the ground rents which line the pockets of landlords.
The lease drawn up by McCarthy Stone in the 1990s and signed by your brother states that he must pay the freeholder 1% of the gross sale price, or the open market value, whichever is greater (and guess who gets to decide which is greater!), if he sells or sublets. If the money is not handed over within seven days, the new occupier becomes liable. You’ve accepted an offer of £93,950 for the flat, so your brother will have to remit nearly £1,000 in return for nothing.
However, there’s good news and bad. The good news is that the terms and the lease changed 12 years ago, even if the document he signed was not updated. Back in 2012 a report by the now defunct Office of Fair Trading (OFT) concluded that these opaque fees were likely to be in breach of the Unfair Terms in Consumer Contracts Regulations. Its investigation was prompted by the same terms and conditions in McCarthy Stone leases that appalled you.
However, instead of taking freeholders to court and recommending regulation, the OFT merely invited freeholders to back down. McCarthy Stone, for instance, agreed not to include the fee in future leases, and not to enforce it in existing ones. The bad news for your brother is that McCarthy Stone had already sold the freehold of his complex to Proxima GR Properties, a company owned by the Tchenguiz family trust of which the multimillionaire property tycoon Vincent Tchenguiz is a beneficiary.
The same trust forced leaseholders in a Croydon tower block to stump up more than £30,000 each to replace inflammable cladding.
Proxima GR did not cooperate so readily with the OFT. Instead of voiding the transfer fee clause, it merely agreed to adjust it. Residents now have to pay 1% of the price they paid for the property or the sale price, whichever is lower, and a fixed fee if they sublet. Since the offer you’ve received for your brother’s flat is less than the £130,000 he paid for it, he’ll still have to hand over £939.50.
FirstPort, speaking on behalf of Proxima GR, told me that it does not benefit from the fee that goes straight to Proxima. “Transfer fees are charged in line with the terms of the individual leases and our clients’ agreement with the OFT,” it says.
“Detailed information on transfer fees is provided to both sellers and purchasers via their legal representatives during the pre-sales conveyancing process, and purchasers should, of course, be clearly advised by their conveyancer.”
Transfer fees are indefensible, according to Sebastian O’Kelly of the Leasehold Knowledge Partnership. “They are for no defined service whatsoever, simply a revenue stream cooked up by McCarthy Stone and sold on to the punter who bought the freehold. Anyone wanting to know why retirement housing is such a failure in the UK, it is because of the wealth-eroding game-playing of the leasehold system, of which this is an egregious example.”
McCarthy Stone says: “In 2009, we made the decision to remove the 1% transfer fee from all new developments, and not to enforce if it was a condition of the lease where we remained as the landlord.”
In 2019 the Law Commission completed its own investigation into the fees and called for regulation and a binding code of practice to prevent residents being fleeced. The then government promised to implement its recommendations. It never happened.
Now the OFT’s successor, the Competition and Markets Authority, is carrying out yet more research into the legitimacy of the fees as part of a wider project on consumer protection in housing. In the meantime, freeholders can continue raking it in from elderly residents.
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