Retirement Homes: Good Investment or Inheritance Nightmare?

Since the pandemic, almost one in eight over-70’s are planning on or have already downsized their property according to a survey done by Retirement Villages Group.

The figures come as many older people are re-evaluating their living space after being left in isolation during the lockdowns and the devastating impact that Covid-19 had on care homes.

The retirement property company, a building developer for homes where elderly residents can live independently with access to communal facilities, have said there has been a jump in queries during the coronavirus pandemic.

Traditional care homes will usually offer a single-room accommodation for a weekly rent charge where fees are inclusive of care that covers some medical administration. Retirement developers, however, are more suitable for those who want a more independent lifestyle.

These are mostly leasehold homes that are age-exclusive and typically come with service charges, ground rents and, in some cases, large exit fees.

Retirement homes can come in various places and sizes, for instance, some developments might average around 40 flats, or others are purpose-built retirement villages boasting 200 plus properties, which are often located in the countryside.

Smaller-scale developments will include communal laundry facilities and breakrooms with an on-site warden who responds to a lead pulled for emergencies. Larger scale developments normally contain subsidised restaurants, gyms, and tennis courts.

As good as these may sound, the Law Commission has criticised the developments for their high costs and restrictive rules. The problem mainly surrounds the fees hidden within complex leases, especially where ‘exit-fees’ and the continuation of service charges are passed on to those who inherit the property until it is sold.

Service charges can typically range from £1,500 to £3,000 a year for a one-bed flat, but for more high-end developments, you can expect to be looking at £10,000 plus a year, according to Age UK. On top of this, you may be liable to pay up to 30% of the sale price or market value on the sale completion, typically known as an ‘assignment fee’ or ‘exit-fee’.

Many of those who have inherited these properties have found it difficult to sell, where buyers must be within a certain age bracket and sometimes meet other criteria. With this, the uncertainty of the pandemic and mounting service charges, many have been desperate to flog the retirement homes way under their market value.

So what is being done about it?

The Law Commission provided their recommendations back in 2017, which was then called the Transfer of Title and Change of Occupancy Fees in Leaseholds project. The Government responded to the commission’s “well researched and considered report”, and will “implement the report’s recommendations, with exception of two issues”, which the Minister for Housing and Homelessness added required further detail.

You can view the full recommendations from the Law Commission here.

If you need legal advice around leasehold transactions or even need representation following a dispute – get in touch with our property team. Learn more about our property services here or call 023 8023 4433 to get started.

Disclaimer: Information on this webpage is not intended for legal purposes or advice. If you require legal advice or services you should seek a professional legal practitioner.