New standards for a new era
Within retirement real estate, the regulation around deferred management fees, or event fees as they are commonly known, is set to change. These will still be paid by leaseholders on events such as a sale or change of occupancy. However, there will be greater transparency around how much and when customers are charged, with a requirement for upfront disclosure.
This news has caused concern among some operators, fearing it could affect property sales. Yet it can be seen as an opportunity to build customer relationships. A new model for event fees, resulting in lower ongoing costs, deferment of ongoing charges and peace of mind for customers, will strengthen the sector overall. It can bring clarity for customers, operators, investors and lenders, and help to create a more positive perception of the retirement living sector in the UK.
Our ageing population, and operators’ duty of care to vulnerable customers, mean this regulation is much needed. The changes will ensure that customers are treated more fairly and we can learn from the financial services industry, where this approach is central to regulation and has helped move the industry forward. As the retirement sector continues growing, we require a similar framework.
Historic issues around event fees
The need for regulation of event fees is clear when looking at the difficulties they cause. The Law Commission’s review of 2014-2017 exposed how customers often feel misled, sometimes rightly so, when faced with event fees that are hidden in complex leases or charged in difficult circumstances. They can be applied if a spouse or carer moves into a property and following the sale of the property in which a deceased relative lived.
While operators focused on sales have avoided highlighting event fees, this approach has to be weighed against the damage caused. It affects the customer relationship, also bringing wider reputational issues for the operator, and the sector overall. Operators need an infrastructure allowing them to provide better service.
There have already been moves towards this, with the Associated Retirement Community Operators (ARCO), helping the industry start to self-regulate. ARCO’s members include private and not-for-profit organisations, equal to half of the UK’s retirement sector. The ARCO Consumer Code, launched in 2015, provides a benchmark for good practice within housing-with-care. As part of this, operators must ensure that prospective residents are given clear and transparent information about fees and service charges well in advance.
Law Commission review
The Office of Fair Trading (OFT) conducted its own investigation into event fees in 2013, before asking the Law Commission to review. Both organisations shared a concern around fairness, while looking to retain the benefits of event fees for customers. The UK Government has praised the Law Commission’s report, stating in 2019 that it accepted the majority of the recommendations:
- Limit when an event fee can be charged, and, in some cases, the amount charged
- Impose obligations to provide transparent information early in the purchase process
- This information will be standardised, and will enable a consumer to understand:
- Information about the event fee – how it is calculated, who receives the fee, and what a consumer receives in exchange for the fee; and
- How much the event fee is likely to be, depending on changes in the property’s value.
The Government is still exploring two recommendations: to establish an online database for providing information to prospective buyers, and to consider spouses’ and live-in carers’ succession rights to stay at a property without paying an event fee. Yet, overall, it appears aligned with the Law Commission and the OFT in trying to balance moral and business concerns.
Treating customers fairly
The financial services industry has achieved a similar balance through the treating customers fairly (TCF) principle. Introduced by the Financial Services Authority in 2006, it requires firms to show that TCF is at the heart of their business model.
The approach is based on six key outcomes: to ensure that fair treatment is embedded in company culture; that products and services meet customer needs; that customers are provided with clear information and updates; that they receive suitable, tailored advice; that products and service levels are as expected; and that customers can change providers or products, and/or make complaints, without difficulty.
TCF is now part of the fabric of financial services. Post the financial crisis, despite much other regulation, the Financial Conduct Authority integrated TCF into its work when it launched in 2013. TCF provides an ethical framework for firms, and brings more confidence for customers. Underpinning high-profile campaigns, for example to help customers claim for mis-sold payment protection insurance, TCF is an industry anchor.
A stronger sector and enhanced experiences
TCF provides a useful regulatory precedent ahead of the changes to event fees. Once put into practice, this kind of regulation can help to raise standards across a sector and improve customer experiences.
Within the retirement living sector, this has been proven outside the UK, in countries including the US, Australia and New Zealand. New Zealand’s well-established code of conduct, enacted in 2003, has ensured that event fees aren’t a customer concern. It has been used to inform the UK regulation, ensuring that the UK learns from best practice.
We believe that once greater transparency within the retirement sector becomes part of industry-wide processes, the benefits will be felt by customers and operators. Ahead of the Government implementing the Law Commission’s recommendations, operators that start applying them now as best practice can lead the way.
We can also look forward to the Government’s conclusions on the recommendations it is still considering. For example, an online database for estate agents and customers, with event fee information included in all advertisements, would remove operators’ dilemmas around disclosure.
In the years to come, more transparent practices around event fees – improving the perception of the retirement living sector, will increase both demand and supply of retirement housing, benefitting customers, operators, investors and lenders.