The Law Commission has opened a new consultation on ‘event fees’, charged in leasehold property on events such as resale. Max Marenbon, senior researcher at the Law Commission, outlines the proposals
Event fees can be up to 30% of the sale price. They are common in retirement flats and come in many flavours, including ‘transfer fees’, ’contingency fees’ and ’deferred service charges’.
Event fees can help make retirement flats affordable for residents, and financially viable for developers. They can be used to keep annual service charges down. But after public anger at the fees and an investigation by the Office of Fair Trading which concluded that some event fees were ’potentially unfair contract terms’, the Law Commission began to investigate.
The Commission surveyed Law Society members who undertake retirement property conveyancing work. The results were stark. According to respondents, most buyers first hear about event fees from their solicitor. By this stage, they have had an offer accepted, and invested time and money. They are already emotionally committed to the purchase.
Worse still, a mystery shop by the Commission revealed that some estate agents wrongly say there are no fees payable on resale, even when asked directly.
Failure by estate agents to disclose event fees in advertising and viewings may breach the Consumer Protection Regulations 2008. This is a criminal offence.
But there are big gaps in the civil remedies for consumers who have been caught unawares.
Event fees count as fixed service charges. Unlike variable service charges, the First Tier Tribunal cannot review event fees for reasonableness. And the statutory trust that protects normal sinking funds does not apply when the fund is raised through event fees.
Unfair terms law does regulate event fees, but in a piecemeal way. Leases created before the Unfair Terms Directive came into force may not be covered. And the circumstances of the original grant of the lease, rather than the most recent sale, are what the court would take into account when assessing the fairness of an event fee.
The Commission concludes that event fees fall within a lacuna in the law, and proposes a three-step strategy to fill it.
Under the provisional proposals, industry codes of practice would require companies conducting the sale of retirement flats to disclose event fees at an early stage, clearly and prominently.
By an addition to the ‘grey list’ on the Consumer Rights Act 2015, event fee terms would be deemed indicatively unfair where the relevant code of practice had been breached.
And the relevant circumstances for deciding whether an event fee was fair would be treated as those of the most recent sale, not the original grant of the lease.
The new rules would not be retroactive. They would apply to existing leases, but only from the next conveyance.
These are technical tweaks. But with 145,000 retirement properties in England and Wales, the potential impact is wide.
The consultation is open until 29 January 2016.