Some landlords of retirement properties include provisions in their leases requiring payment of transfer or exit fees on any sale or subletting. Some go further and charge fees on the creation of a mortgage. Such fees can be up to 30% of the property’s resale price in retirement villages with a range of amenities.
It might be thought that the law protects residential tenants from charges that are exploitative or unfair. However, the statutory provisions that control residential service charges, administration charges and section 19 of the Landlord and Tenant Act 1927, which deals with the payment of fees for the provision of consent to an assignment, are not designed to deal with such costs. Consequently, practitioners will be interested in the outcome of legal challenges based on other legislative provisions.
Burrell v Helical (Bramshott Place) Ltd [2015] EWHC 3727 (Ch); [2015] PLSCS 369 concerned the validity of clauses in leases requiring payments from assignees amounting to 5% of the open market value of the property if the leases were assigned within the first three years of the term, rising to 10% during the next seven years, and increasing to 15% after that. The leaseholders claimed that the provisions were consumer credit agreements, which were unenforceable as a result of breaches of the Consumer Credit Act 1974.
The leaseholders relied on statements made by the landlords that described the revenue from such fees as a return on the capital invested in the provision of amenities and facilities at its retirement villages. Although residents paid for the day to day running of the facilities through a service charge, the return on their investment was derived from the transfer fees (enabling buyers to afford properties on a luxury development without having to meet the cost of the facilities when they bought).
The judge struck out the leaseholders’ claim. Their approach was neither required, nor permitted, by the authorities. The leaseholders were not debtors. The premiums for their leases were paid at the very outset and the provisions requiring the payment of transfer fees did not involve the provision of any credit. The payments needed to be made on, and related to, the assignment of the leases, and the amounts due were payable by the assignees. The leases did not oblige the tenants to make deferred payments to discharge existing debts. Therefore, the legislation did not apply.
Attention will now focus on the leaseholders’ alternative argument that the transfer provisions in their leases are unfair. The trial of that issue is expected to take place in the summer and is likely to address thorny issues arising under the Unfair Terms in Consumer Contract Regulations 1999.
Watch out too for the outcome of the Law Commission’s consultation on proposals to provide greater protection for potential buyers, by ensuring that they are properly informed at the very outset: see Residential Leases: Fees on Transfer of Title, Change of Occupancy and Other Events. The consultation period ends on 29 January 2016 and the Law Commission hopes to make interim recommendations later this year.
Allyson Colby, property law consultant
