The small print

Many residents entering a care home do so following a crisis. Their family usually takes on the responsibility of finding a suitable home, and few consider the terms of the contract to which the resident will be bound. The average cost of a UK residential care home in 2017/18 was £32,344 a year. This rose to over £44,512 when nursing care was included.

As stays in care homes are usually for years rather than months, it is hard to imagine why anyone entering into a contract would do so without proper advice. Yet many do not even see a contract until they are in situ – few will have sought independent advice on its terms. Without such advice, there is a high chance the resident is signing a contract that is not in their favour.

The Competition and Markets Authority (CMA), which has responsibility for enforcing consumer protection legislation, carried out a market study into care homes for the elderly, to review how well the market works and if people are treated fairly. It concluded they are not.

In May 2018, the CMA published ‘UK care home providers for the elderly – consumer law advice on the charging of fees after death’. Later that year, it issued guidance, ‘UK care home providers for older people – advice on consumer law: Helping care homes comply with their consumer law obligations’.

This article explores the main points contained in the guidance and what advisers should do if they encounter terms the CMA has deemed unfair.

The CMA guidance

To comply with consumer law, the CMA considers that care homes should:

• provide key information upfront, so residents and their representatives are not misled and can make informed decisions
• ensure that contracts are fair and do not put residents at an unfair disadvantage by tilting the rights and responsibilities under the contract too much in favour of the home
• perform services with reasonable care and skill
• have an effective procedure for dealing with complaints, which is easy to find, easy to use and fair.

First contact information

The home should prominently highlight prescribed key information, such as whether it accepts state-funded residents (with or without a ‘top up’), an indication of weekly fees, whether it requires a guarantor, and any upfront payments. This must be displayed on its website and in other written materials that it provides to prospective residents or their representatives, when they get in touch for the first time. Key information must also be brought to the attention of the prospective resident and their representatives at the point of first contact (regardless of how this occurs).

Important additional information

Any important additional information should also be provided to prospective residents and their representatives in a clear, accurate, accessible, unambiguous and timely manner. This includes an explanation of the impact on the resident if their funding changes, such as if they subsequently qualify for state support. This information should be provided, at the latest, before the home agrees to undertake an assessment of the prospective resident’s needs, as should a copy of its standard contract / terms and conditions.

Where the home accepts state-funded residents, there will be a placement contract between the home and the public funding body, which will determine the terms of the resident’s placement. However, the resident and their representatives will still need to understand the terms and conditions of their stay and will usually be provided with a pro forma copy of a ‘residency agreement’ that they may be required to sign before agreeing to a care needs assessment. As with the main contract, the agreement should not impose unfair terms on the resident.

Once the prospective resident decides to move in (or their representatives decide on their behalf), the home must confirm the final, total amount that the resident will have to pay (including the total gross weekly fee rate, inclusive of taxes, and any permissible upfront payments), as part of its offer of a place. In addition, for state-funded residents, there should be confirmation of what has been agreed between the home and the funding body as it relates to the resident’s care, and any ‘extras’ they have agreed to pay for.

Advisers should be aware that, in such cases, the public body remains responsible for the full cost of care, even if another person has agreed to make an additional payment so the resident can move into their preferred home.

Unfair terms

The CMA has identified several terms within care home contracts which it considers unfair.

Hidden terms

Binding residents to ‘hidden’ terms, such as incorporating policies and correspondence (emails, phone messages etc) into the contract, is likely to be unfair. The resident would not have a real opportunity to read and understand their rights and obligations under the contract, before being bound by it.

Security or reservation deposits

Terms that require a substantial security deposit, or which give the home a wide discretion to retain a deposit, without clear justification, when the contract ends, are likely to be unfair. Deposits may operate as a financial sanction for ending the contract, or even to deter residents from complaining or challenging invoices where they are dissatisfied with the service, for fear of losing their deposit.

A term which makes a reservation deposit non-refundable in all circumstances, even where a prospective resident does not move in, is likely to be unfair. Such a term allows the home to retain payment, even when it is at fault or its actions prevent the resident moving in, as agreed. Any reservation deposit should be financially limited, as the potential loss is limited.

A term requiring a resident to pay a wholly or partially non-refundable fee on signing a contract is also likely to be unfair. It can have the effect of taking away the resident’s right to terminate the contract, particularly within any trial period, and can operate as a financial sanction on the resident – but it can mean a windfall for the care home.

Placement fees

Imposing a requirement to pay an upfront non-refundable fee as a condition for being able to move in is likely to exploit the resident’s need to be admitted, and could cause them to pay a fee which they would not pay if their negotiating power were equal to that of the home.

These terms may be explained by the home as costs associated with admission, but are likely to be unfair. Admissions-related activities are a necessary part of ensuring that the care provider meets the needs of the resident.

In February 2019, the CMA confirmed it would take legal action against Care UK, one of the UK’s largest care home providers, because it refused to refund residents who were charged a compulsory upfront ‘administration’ fee of as much as £3k. The court will now decide whether this breaches consumer protection law.

Guarantors

Some homes require someone to co-sign a self-funding resident’s contract as a ‘guarantor’, or to sign a separate contract, where they agree to be liable for the resident’s fees if payment ceases, and in some cases, for the performance of all the resident’s obligations under the contract, without limitation or further explanation.

Where a guarantor is required, they and the resident must be able to understand and assess the potential extent of their liability and evaluate the practical implications for them both, before they accept responsibility.

If the home pressurises someone into acting as a guarantor, as a condition of accepting a resident, or where it is only mentioned late in the admissions process (when the prospective resident is likely to already be committed to taking up a place), this is likely to infringe consumer law.

Terms to notify when financial resources are reduced

Some homes require self-funding residents, as a condition of acceptance, to confirm that they can continue to pay the agreed fees for a minimum period. This may involve assessing the prospective resident’s finances during the pre-admission process, to check that they have sufficient funds for the stated minimum period, or requiring them to self-certify that they have sufficient assets to self-fund for this period.

If fees are liable to be changed at the home’s discretion, it is difficult to see how the resident can offer any assurance that they will be able to pay what is an unknown future amount. If fee increases are foreseeable, then the term is likely to be fair, but it will be unfair if they are not foreseeable.

Neither the home nor the contract should prohibit, or deter, self-funding residents from seeking state funding if they become eligible during the minimum period. Homes may require the resident to notify them within a specified timeframe if the resident anticipates becoming eligible for state funding. This timeframe cannot be set excessively far in advance, as it will be difficult for a resident to anticipate and comply with such an obligation.

Paying a funding shortfall

Homes should not oblige self-funding residents or their representatives to agree, at the time of entering the contract, to be liable for any future funding ‘shortfall’ (between the self-funder fee rate and local authority rate) that may arise in the event the resident seeks state funding during the minimum period, as it is not possible to foresee at the time of the contract what their liability will be.

Interest rates

Terms that allow the home to impose disproportionately high charges for breach of contract are likely to be unfair. For example, if it requires the resident to pay more in compensation than any loss suffered as a result of the resident’s actions, or pay interest on outstanding fees at a rate above their clearing bank’s base rate, this will be unfair, as it makes the resident pay more than the cost of making up their default. It may also be unfair if it is not possible to identify how much needs to be paid for a breach.

Absence from the home

A term that requires a resident to always pay full fees, regardless of whether allowance could be made by the home for savings or gains available because of the resident’s absence, may be unfair. A resident may need to be absent from the home for an extended period (for example, due to hospitalisation), during which time they may still be paying fees. Fairness is more likely to be achieved where the home limits the period for which full fees are payable, after which a discount will be applied. The discount should be a reasonable estimate of the home’s likely savings.

Terms where the resident must immediately leave

The home should give a permanent resident at least 28 days’ written notice to leave under the Protection from Eviction Act 1977. Where the resident is unwilling to leave once notice has expired, the home must apply to the county court for an order to evict. As such, terms which oblige the resident to vacate immediately are likely to be unfair.

Fees charged post-death

Terms which have the effect of requiring residents or their representatives to continue to pay fees beyond the point at which possessions are cleared from the room are, in principle, likely to be unfair. The CMA’s advice is that homes can charge:

• for no more than a reasonable short and fixed period of up to three days, from the day following the resident’s death, provided provision is made for fees to stop being charged if a new resident occupies the room within this period, or
• until possessions are cleared from the resident’s room by their representatives, provided that a reasonable backstop period of no more than 10 days is included in the contract term for fees to cease from that point.

Third-party top-ups for state-funded residents

Where the home accepts state-funded residents, there will be a contract between the home and the public funding body (such as the local authority or NHS funding body) setting out the terms of the resident’s placement.

Any agreement that the home asks the resident or their representatives to sign should not conflict with the terms of the placement contract. If a third party is making an additional payment toward the cost of the resident’s care, the payment should be made to the local authority, as it remains liable for the full cost of the care (see annex A, paragraph 25 of the Department of Health and Social Care’s care and support statutory guidance on part 1 of the Care Act 2014 / parts 4 and 5, annex C, paragraph 8.9 of the Social Services and Well-being (Wales) Act Code of Practice).

The home must tell the resident and their representatives (and the third party, if this is someone else) about the option of covering the shortfall through an arrangement with the local authority. The home must not simply ask them to cover the extra costs themselves in a private arrangement – this is likely to infringe consumer law, as it exploits the resident’s unfamiliarity with the legislation and statutory guidance relating to top-ups.

Similarly, if the home tells the local authority that it is willing to accept the resident at the rate it has offered to pay, but then privately asks the resident, their representative or third party to make additional top-up payments to cover a ‘shortfall’, as a condition of moving into the home (or in order to remain in the home), then this is likely to infringe consumer law and is also inconsistent with the Care Act 2014 and the Care and Support and After-care (Choice of Accommodation) Regulations 2014 in England and its equivalent Welsh legislation.

There is a plethora of reports by the Local Government and Social Care Ombudsman of upheld complaints made by residents and their families about unlawful contractual arrangements, where care homes have charged additional fees ‘behind’ the contract. There are cases where the local authority has colluded with these arrangements. The CMA guidance attempts to further close the net around these practices.

Some residents may be in receipt of NHS Continuing Healthcare (CHC). The contract terms and business practices the home uses with CHC residents must be consistent with NHS rules and relevant policy guidance. The home cannot ask CHC residents or their families to make top-up payments towards the cost of the care package that has been agreed between the home and the NHS commissioning body. Access to NHS services is based on clinical need and not an individual’s ability to pay. Patients should never be charged for their NHS care, or allowed to pay towards NHS care, so seeking additional contributions would contravene the founding principles and legislation of the NHS.

Consequences of unfair terms

It is clear the CMA is working closely with consumer and regulatory partners, including the Care Quality Commission and the Advertising Standards Authority, over this issue.

Advisers who encounter a term which they consider is unfair should initially take it up with the care home manager. If the placement was arranged via a public body, they should also make a complaint to its complaints manager. If these routes do not provide redress, then the complaint can be escalated to the Local Government and Social Care Ombudsman in England or the Public Services Ombudsman for Wales. The process is straightforward and there is no fee charged by the ombudsman for investigating the complaint. Not all complaints have to be investigated, but where they are, it can be effective.

A complaint can also be made to the Care Quality Commission in England, or the Care Inspectorate Wales, which regulate care. The regulators will take a complaint into account in deciding whether the care provider is complying with statutory regulatory obligations.

Homes which fail to comply with consumer law run the risk that the CMA will bring court proceedings to stop infringements, seek compensation on behalf of residents, and in certain cases, bring criminal prosecutions. Residents are encouraged to complain to the CMA if the home does not treat them fairly (carehomes@cma.gsi.gov.uk).

This is in addition to a resident’s right to seek damages, and allege unfair contract terms resulting in the terms being unenforceable against them, through civil court proceedings.

Solicitors working for older clients, their attorneys or deputies should encourage them to seek advice on this important area, which forms part of care funding advice planning. Clients may otherwise run the risk of a home seeking to enforce an unfair contract term, and the client feeling they have little option but to pay up or move.