January 18, 2021

Leasehold reform – how does this affect retirement housing?

Modern retirement home

Unwelcome news for retirement housing developers?

Although the changes to leasehold residential properties have been on the horizon for a while, it had previously been indicated that retirement housing schemes would be exempt from the changes so the inclusion of retirement properties in these reforms may not be welcome news for retirement housing developers.

New leases of retirement properties will have a zero ground rent so purchasers of retirement homes "have the same rights as other homeowners and are protected from uncertain and rip-off practices".

Ground rents charged on general residential developments do not usually provide any benefits to the leaseholders whereas some retirement housing developers use the ground rents as a way of recovering costs incurred for creating the larger open areas within the retirement communities that cannot be rented out or sold. Without the ground rents, developers are going to have to reconsider where they can recover those costs and which may have an impact on the management fees charged to residents.

Alternative options

Following the recommendations by the Law Commission last year, many developers have been anticipating changes so have already started to look at alternatives. This for many developers will be considered alongside the different models of ownership which are being discussed within the retirement sector. Some developers now offer mixed schemes that comprise properties for sale, rent or shared ownership and many are now offering 999 year term leases as opposed to 125 year leases.

There is little doubt within the retirement housing sector that providing personalised and supportive services in retirement housing schemes enables residents to stay independent for longer and relieves pressure on NHS services. As such, at time when the Government is looking to the sector to provide more of this type of housing with care, the inclusion of retirement properties in the reforms is surprising.

What's the timeframe?

There is no set timeframe for this new legislation to be brought in. All we know at present is that legislation will be brought forward in the upcoming session of Parliament. However, there is a slight reprieve for retirement housing developers as the zero ground rent for retirement properties will be deferred and will not come into force until 12 months after the legislation receives Royal Assent.

There may also be more changes ahead for the retirement sector once the Law Commission's further recommendations on commonhold and leasehold enfranchisement are considered.

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