What is a leasehold retirement housing scheme?
A leasehold retirement housing scheme is accommodation specifically designed for older adults, blending the advantages of independent living with additional services, often integral to the lease agreement. It is also known as sheltered housing.
Being leasehold, the individual homes (usually flats, but sometimes bungalows) are owned on long term leases, with the freehold of the scheme remaining owned by the operator.
Retirement housing represents a significant portion of residential leases in the UK.
How are they different from other forms of retirement housing?
Leasehold schemes differ from other forms of retirement housing.
The residential developments typically include communal facilities such as lounges, gardens, and sometimes even restaurants and wellness centres. These amenities enhance the living experience but also necessitate additional considerations regarding management fees and service charges.
While properties can be sublet, subletting usually requires the permission of the manager and is subject to the same rules as ownership of the lease.
Residents usually have to be over a certain age (55 is common) and meet other requirements.
Retirement community operators
Retirement community operators are the leaseholders' point of contact for services, maintenance, and management of the property.
They usually employ a warden, a house-manager or an estate-manager to live on the premises and be present day-to-day.
Despite this, leaseholders still retain legal responsibilities and obligations.
Ground rents in retirement leases
What is ground rent and why does it matter?
Ground rent is an annual fee paid by the leaseholder to the landlord.
Ground rent matters because it has traditionally been a consistent income stream for landlords of leasehold retirement properties.
However, this payment can occasionally become a point of contention, especially if the cost is deemed excessive or the increases are unpredictable.
Impact of leasehold reform on ground rents
Leasehold reform has brought about a significant shift in the handling of ground rents.
The Law Commission has facilitated these changes, particularly concerning new leases. The reforms aim to limit what some may view as 'rip off practices', and they could potentially alter the landscape of retirement housing.
How does the Leasehold Reform (Ground Rent) Act 2002 affect retirement properties?
The Leasehold Reform (Ground Rent) Bill received Royal Assent in 2022.
A significant impact is to restrict ground rents on new residential long leases to a peppercorn rent. From 1 April 2023 this included leases for retirement properties.
This term effectively means no financial payment.
This change is substantial for new retirement leases because traditionally rents have been used to pay for costs relating to this sort of housing, such as the employment of specialist health professionals. Removing ground rents changes the business model for operators.
Are existing leases affected by ground rent reforms?
Current legislation predominantly focuses on new leases, implying that many existing leases may not see an immediate impact.
However, these changes do set a new standard for ground rents, which could influence discussions around existing lease agreements.
Consequences of non-compliance with ground rent reforms
Non-compliance with the ground rent reforms could have several repercussions for landlords.
For example, failure to comply with these changes could legally hinder the sale of leasehold properties until any issues are addressed.
The leasehold system as it works in retirement housing
Operating on the premise that property owners purchase a long lease for their home, typically 99 or 125 years, the system in retirement housing is very similar to the system for any other leasehold property. Owners of leasehold retirement homes has many of the same rights as owners under the rest of the leasehold sector.
For example, appointing a managing agent is usually the prerogative of the freeholder, or the management company if residents have claimed their Right to Manage (see below).
Managing agents, often entrusted with the arduous job of handling financial matters, collect service charges, manage the communal budget, and tackle any arising maintenance issues.
They also enforce lease covenants and ensure insurance is in place.
However, leasehold retirement housing introduces particular stipulations pertinent to the demographic of the tenants living there and their specific needs.
What happens when a lease expires?
In practice, leases rarely expire because leaseholders have a right to renew them.
But if a lease was not renewed, the law allows the tenant to remain living in the property under an assured tenancy. However, they would not have the same legal rights as a leaseholder.
Lease extensions and how they relate to market value
An expiring lease often raises questions and concerns. When a lease dwindles below 80 years, its value starts diminishing, potentially posing financial difficulties for the leaseholder.
Lease extensions offer a feasible solution for those facing a lease's end. Legislation in the UK enables leaseholders to extend their leases by an additional 90 years while reducing the ground rent to a peppercorn rent.
A lease extension is not a process without complication, notably because of the need to value the residential property subjectively before and after the new lease has been granted. But it is possible for owners of all ages - particularly with a little help from a solicitor.
This right to extend a lease plays a vital role in preserving the market value of a property. By doing so, leaseholders can dodge the risk of the diminishing value of their property, making it a smart step for future financial stability.
Key aspects of service provision in leasehold retirement housing
Service provision in leasehold retirement housing is paid for by the collection of service charges levied for the upkeep, maintenance, and administration of the building and communal areas, from gardening and cleaning to caretaker services, larger maintenance and repair tasks.
Within retirement properties, maintenance of communal areas and support services constitute a large portion of service charges. These communal provisions enhance the living experience but also add to the ongoing cost of living in a leasehold retirement property.
It is of high importance that leaseholders comprehend what their service charges cover, how they are calculated and their rights in relation to them. Having a clear understanding can avoid unnecessary disputes and make the retirement living experience much smoother.
Residents' rights to challenge service charges
Residents are not without recourse if they find service charges unreasonable.
UK law grants leaseholders the right to challenge these charges at a tribunal if they believe they are being overcharged or if the services provided are subpar.
Understanding the retirement sector's response to leasehold reforms
The retirement sector, dealing predominantly with leasehold properties, has shown significant dynamism in response to leasehold reforms.
These legislative changes have primarily targeted ground rents, perceived by many as income streams ripe for reform.
How has the retirement housing sector reacted to leasehold reform ground rent changes?
Since the announcement of leasehold reform ground rent changes, the retirement housing sector's reaction has been mixed.
Managing agents
Most operators have accepted the need to alter their business models to accommodate the revised law commission's guidelines.
Some of these changes include altering the structure of their management fees, reconsidering their event fees, and scrutinising their service charge operations to ensure they align with best practice.
Some have changed their operational model, providing fewer included services and instead, charging separately for them.
Additionally, some operators have sought to enhance their shared ownership schemes to provide a different form of revenue.
Impact on lenders operating in the retirement sector
Lenders in the retirement sector have also faced the need for adaptation due to changes in income streams from ground rents.
They've responded by reassessing the risk associated with retirement properties and adjusting their lending criteria accordingly.
Resolving problems in leasehold retirement housing
Disputes and problems are not uncommon in leasehold retirement properties.
From concerns over escalating costs to dissatisfaction with service provision, there's a need to understand the various solutions available.
Options for addressing leasehold problems: individual or joint action
You can choose to act individually, directly communicating your concerns to your landlord or management company.
Alternatively, you can join forces with other homeowners in your development to collectively address the issues.
The manager’s complaints procedure
Every leaseholder has a right to use the landlord's or manager's complaints procedure when they encounter problems in their retirement housing.
This involves following a set procedure, starting by submitting your complaint in writing, and then escalating it to the trade body if necessary.
Can the ARHM procedures help in resolving leasehold disputes?
The Association of Retirement Housing Managers (ARHM) provides a robust code of practice that can assist in resolving leasehold disputes. It outlines the responsibilities of the manager and the leaseholder, providing a framework for dispute resolution.
However, it is recommended to consider the assistance of a solicitor for a smoother and more efficient resolution process.
Understanding statutory rights and remedies
As a leaseholder, you are protected by various statutory rights and remedies in the UK law. For example, you have the right of first refusal if the freeholder wishes to sell the property.
Additionally, you can challenge service charges you deem unreasonable at the tribunal. Understanding these rights can empower you to address issues effectively in your leasehold retirement property.
Purchasing the freehold: is it a good option?
What does purchasing the freehold mean for flat owners in retirement schemes?
For flat owners residing in retirement schemes, acquiring the freehold refers to collectively buying the land upon which the building stands.
The process is facilitated by a right enshrined in leasehold law known as collective enfranchisement.
The procedure leads to the leaseholders collectively owning the freehold through a company, often providing them with greater control over the management of their property.
Pros and cons of buying the freehold
Buying the freehold brings many benefits. As a freeholder, you can make decisions regarding the management of the property, enabling you to control escalating costs.
You can also extend the lease to 999 years for a 'peppercorn rent' - essentially a nil value - providing stability for your residential long lease.
However, the purchase of a freehold isn't a step to be taken lightly. The process is often complex and involves a number of legal procedures and costs, which can be significant.
If the freeholders don't manage the property effectively, it could lead to problems down the line.
The difference between purchasing a freehold for houses, bungalows, and flats
Purchasing a freehold differs depending on the type of property. For leasehold houses and bungalows, the freehold purchase usually involves a simpler process, as there is only one party involved. However, flats require a collective decision, leading to a process that involves all or the majority of the leaseholders in the building.
The Right to Manage in retirement leases
What is the Right to Manage and how can it benefit leaseholders?
The Right to Manage is a statutory right that allows leaseholders to take over the management of their building without having to prove any mismanagement by their landlord.
This enables them to take control of services, repairs, maintenance, improvements, and insurance. By doing so, they may benefit from reduced service charges and greater control over expenditure.
How can the Right to Manage impact management fees and escalating costs?
The impact of the Right to Manage on management fees and escalating costs can be significant.
Leaseholders can potentially reduce their costs by selecting more competitive contractors or negotiating more favourable contracts. Additionally, they may be better positioned to prevent any unforeseen and unjustified cost increases.
Further advice for managing your leasehold retirement property
Solicitors experienced in leasehold law can provide guidance on complex issues, potentially saving you time and reducing risk. However, much of the information is accessible to homeowners who wish to research the topics themselves.
The Law Commission and government websites are useful resources for updates on leasehold reforms and other related changes to current legislation in the retirement sector.