What could this mean for co-housing & community-led housing?

We have previously written about the government's concerns that tenants of retirement complexes were being treated unfairly when they or their children came to sell their retirement flat or house.  Often, the retirement complex provider would take a large proportion of the sale proceeds – something known as an event fee.  The money was either ploughed back into the complex or added to shareholder dividends.

The government's concern was that the tenants did not appreciate how much the event fee would be and that some providers were abusing the practice in order to line their own pockets.  The government asked the Law Commission to look into the issue.

Although the initial worry was that there were unfair practices in the retirement sector, the Law Commission's ambit was to look at event fees generally.  A number of co-housing and community-led housing groups require their members to pay a proportion of the sale proceeds back to the group when they leave and this is almost undoubtedly an event fee. 

Although most groups' reasons for requiring event fees are often at least partly altruistic (e.g. as a way to subsidise younger members where they wouldn't otherwise be able to afford to buy a unit) any restrictions on event fees could have an impact on a group's ability to support itself and subsidise its members via event fees.

The Law Commission has reported back to the government, the main recommendation is the introduction of an obligatory code of practice to ensure tenants are treated fairly and that information about event fees is not hidden away in the small print or only mentioned at a late stage.

Co-housing and community-led housing groups should ensure that they adhere to the principles of the proposed code of practice, even though a code has not been (and may never be) introduced.  In particular, they should ensure that members are told about event fees early on and given a realistic estimate of what level of event fees will be payable.  Groups should keep copies of all information they give tenants on the issue, in case there is ever a challenge. 

Groups should bear in mind that it may not be a member who challenges the event fee (members tend to buy into the ethos and want to put money back into the group) but it may be a child or more distant relative who inherits on the member's death.  This type of inheritor has nothing to lose by challenging the legitimacy of an event fee and potentially much to gain.

We can advise on best practice and limiting your exposure to challenges and please contact Emma Ridge or Laura Moss if you need more information.