Hart leasehold retirement properties: hidden transfer fee terms

Office of Fair Trading (OFT) closed consumer enforcement case.

Case information

Case reference number: CRE-E/24897
Complainant: OFT own-initiative investigation
Investigation into: 

  1. Hart Retirement Developments (Southern) Limited (company registration number 01000183 with a registered office of Oakleigh House, High Street, Hartley Wintney, Hook, Hampshire RG27 8PE
  2. Hart Retirement Developments (Thamesnorth) Limited (company registration number 02600192, with a registered office of Oakleigh House, High Street, Hartley Wintney, Hook, Hampshire RG27 8PE)

    (both companies hereinafter collectively referred to as 'Hart').

Issue

The fairness of transfer fee terms enforced by Hart in leasehold agreements with tenants of its retirement home properties.

Relevant Law

  • The Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs).
  • Enterprise Act 2002.

Case description

As part of an industry wide investigation, the OFT investigated the use of transfer fee terms by Hart in leasehold agreements with tenants of its 14 retirement home developments in England and Wales. Hart does not charge a ground rent at these properties.

The transfer fee term requires tenants to pay between 1.5 per cent and five per cent (dependent on how long the property was owned) of the higher of the sale price or open market value of their property in a number of circumstances. The OFT considered that the transfer fee terms were likely to be in breach of the UTCCRs.

Undertakings given

Whilst Hart did not agree with the OFT's views and believed that its transfer fee terms did not breach the UTCCRs, it engaged constructively with the OFT during the investigation and agreed to sign undertakings to address the OFT's concerns, which the OFT accepted. Undertakings were voluntarily given, without any admission of any breach of the law, by Hart.

New developments

Hart has undertaken that it will not include provision for the charging of a transfer fee in any new retirement housing it constructs, unless the fee is for a service and represents its reasonable costs.

Existing developments

Leasehold properties

Hart has also agreed, amongst other things, to make the following changes to how it enforces transfer fee terms in the leases of its existing retirement home properties:

  • it has clarified that a transfer fee will not be payable upon the tenant's interest first being passed on to a beneficiary under a will or intestacy, when sub-letting, or in circumstances where there is otherwise a change in occupation, an equity release or a surrender
  • the transfer fee will continue to be charged on final sale. But for existing tenants the transfer fee payable on sale will now be calculated against the lower of either the price the tenant sold the property at, or the price the tenant originally paid for the property adjusted by the Retail Price Index. The fee was previously calculated as a percentage of the higher of the sale price or open market value.  As a result, the amount of the transfer fee payable upon sale may in some instances be less than would previously have been the case
  • existing tenants will also be given the option to switch to paying a quarterly ground rent in place of the transfer fee if they want greater certainty in planning their future financial liabilities. If tenants choose to switch to paying a ground rent, they will need to pay a lump sum at the time of switching equivalent to the notional ground rent that they would have paid for the period between the purchase of the property and their decision to switch
  • future tenants will be given the option at the outset to make a fresh decision between paying a quarterly ground rent or a transfer fee on final sale. If they choose the transfer fee option, the fee payable will now be calculated on the sale price (and no longer on the open market value if higher) avoiding disputes about what the property was really worth.

Freehold properties

Although not the focus of the OFT investigation, Hart has also agreed to make some changes in relation to the small number of existing freehold properties sited within its developments for which it is entitled to receive a transfer fee from the owner:

  • it has clarified that a transfer fee will not be payable upon the owner's interest first being passed on to a beneficiary under a will or intestacy, when sub-letting, or in circumstances where there is otherwise a change in occupation, an equity release or a surrender
  • the transfer fee will continue to be charged on final sale. But:

    • for existing owners the transfer fee payable will now be calculated against the lower of either the price the owner sold the property at, or the price they originally paid for the property adjusted by the Retail Price Index. The fee was previously calculated as a percentage of the higher of the sale price or open market value.  As a result, the amount of the transfer fee payable upon sale may in some instances be less than would previously have been the case

    • for future owners, the fee payable will now be calculated on the sale price (and no longer on the open market value if higher) avoiding disputes about what the property was really worth.

Hart has undertaken that should it transfer its interest (or create a subordinate leasehold interest) in any of its existing retirement home properties that contain transfer fee terms, it will secure the agreement of the purchaser to abide by the terms of the settlement.

The OFT has closed its investigation into Hart on the basis of the undertakings given by the company.

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