In September 2009 the OFT announced an investigation into the contract terms signed by owner-occupiers of purpose-built retirement homes. We considered that a number of terms relating to transfer fees – payable when a lease is assigned, sold or disposed of – may be unfair, and hence breach the Unfair Terms in Consumer Contracts Regulations 1999 (UTCCRs).
Transfer fee terms typically provide that a percentage of the sale price or original purchase price goes to the developer and/or managing agent when the property is sold or sub-let. The percentage charged varies between developments and the fees can amount to thousands of pounds.
Transfer fees should be distinguished from administration charges (which are challengeable for reasonableness in England and Wales, under the Commonhold and Leasehold Reform Act 2002 (CLRA), at the Leasehold Valuation Tribunal
In general, there are a number of features of transfer fee terms which in our view make them potentially unfair. In particular, consumers may struggle to understand the implications of the transfer fee (even when transparent) due to a lack of certainty about their future financial obligations. Transfer fees may also apply in wide-ranging and surprising ), as typically they are not paid in return for approval, provision of information or other services associated with a transfer but are simply payable in the event of an assignment or other transfer taking place.
As a result of our investigation, a number of landlords have agreed to either cease enforcing a transfer fee, to replace it with a flat fee, or to make changes – such as only enforcing the term on final sale and not in a wide range of other circumstances – that mitigate what we consider to be the most egregious unfairness of their respective transfer fee terms.
We have set out in the report a number of general principles that we would expect all landlords to abide by when enforcing transfer fee terms in existing leases; these principles represent the minimum steps we consider necessary to address the most egregious unfairness around such terms. We believe that the companies that were the subject of active OFT investigations are likely to cover the great majority of properties in the non-assisted retirement home market.
However, from an economic and policy perspective we remain of the view that the transfer fee model is not optimal for consumers. For this reason, although we have sought to improve the position for leaseholders (tenants) in relation to existing leases, we have consistently maintained our position that we want this business model to cease being used in newly built or acquired developments.
We recommend that legislative reform be considered as a means to address the difficulties tenants have in challenging the reasonableness of transfer fees, such as for example by expanding the remit of the Leasehold Valuation Tribunal to allow the tribunal to rule on the reasonableness of such fees or by prohibiting the levying of such fees altogether.

Publisher: Office of Fair Trading
Published Date: 2013
Length: 68pp

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