Buying a retirement home has a different process than purchasing a standard home due to the additional restrictions and conditions that landlords typically impose.
Trainee solicitor Joe Kennedy outlines some of the key considerations.
There are several matters to consider when purchasing a retirement property.
Most retirement properties will be held under a leasehold title. This means they are subject to the provisions of a lease. The lease contains a number of provisions by which the purchaser will be bound on completion of the transaction.
As is standard in all residential leases, the tenant will be required to:
- Pay ground rent
- Pay service charge (being a proportion of the costs that the landlord incurs in providing maintenance and insurance of the building as a whole)
- Keep the property in a good and tidy condition
- Notify the landlord as and when a transfer or underlease of the property takes place.
- Not use the property for anything other than as a single private residential dwelling
- Not cause any nuisance or annoyance to neighbouring residents
A retirement property, however, imposes additional restrictions and obligations on the tenant.
One of the standard provisions contained in the standard lease to a retirement property is that neither the owner nor the landlord can sub-let, transfer or part with possession of the property unless they are doing so to someone over a certain age (on average, this age tends to be 55-60 years of age).
Another standard provision of the lease is to ensure that the landlord is given notice (usually 28 days) before the property is transferred or underlet. This is so that the landlord can assess whether the incoming tenant is capable of maintaining an independent and active lifestyle. The usual reason that is given for this requirement is so that the tenant can enjoy the facilities in the building.
On completion of the sale, the seller is obliged to pay the landlord a transfer fee. Again, this will differ between transactions, but the usual fee is 1% of the sale price. If the fee is not paid within a certain amount of time, this obligation falls upon the purchaser/new tenant. As such, the new tenant’s solicitor should ensure that this fee is paid by the seller’s solicitor.
What to look out for
There are three keys things to look out for when purchasing a retirement property:
1 – Service Charge
Some retirement properties will be run by residents’ management companies or right to manage companies, where residents dictate the day to day running of the building. In this case, the service charge is likely to be considerably lower than if it is run by the freeholders.
2 – Lease renewal
If the lease has less than 80 years left on the lease term, it could become costly to renew. Should the owner pass away, this cost and trouble could be passed onto the executors of the estate.
The government are currently tackling this issue and should you wish to learn more, please visit the following article on leasehold reform.
3 – Revisiting the point of the transfer fee, although the usual fee is 1% of the sale price, it has been known for this fee to reach even 10% – 30% of the sale price.
If you have any questions about buying a retirement property, please do not hesitate to contact our residential property team.
SO Legal has offices across Sussex, and our Notting Hill team covers West London, including Holland Park, Bayswater, Kensington, Shepherds Bush, Hammersmith, and surrounding areas.