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Event fees are a common feature of many retirement living transactions. Understanding when these fees arise, how they are calculated and, importantly, how they fit within the wider financial model of a retirement community is an important part of making an informed property decision.
What are event fees?
An event fee is a fee that becomes payable when a specified event occurs in relation to a property. In retirement living schemes, this is most commonly triggered on the sale of the property, although other events may apply depending on the terms of the relevant documentation.
Event fees may also be referred to as transfer fees, exit fees, deferred management fees, assignment fees, sale fees, resale fees, purchase fees or contingency fees. While the terminology differs, the underlying principle is similar: a payment becomes due when a particular event occurs.
Event fees in retirement living villages
Many retirement living communities charge an event fee when a property is sold. These arrangements are typically governed by the lease, which sets out when the event fee becomes payable and how it will be calculated.
Because these provisions are often contained within detailed legal documents, careful review and explanation form a key part of the conveyancing process.
Transparency is also central to the ARCO Consumer Code. ARCO members are required to provide prospective residents with clear information about event fees and other charges, so that buyers understand the financial commitment before proceeding with their purchase.
This transparency is particularly important with event fees. A prospective resident should be able to understand when the fee will become payable, how it will be calculated and how it fits within the wider charging structure of the village.
Who is ARCO?
ARCO (Associated Retirement Community Operators) is the main representative body for the UK Integrated Retirement Community sector. Its Consumer Code promotes high standards, transparency and fairness, including ensuring prospective residents receive clear information about fees and charges before committing to a purchase.
A retirement living provider should be able to confirm whether it is an ARCO member, or this information can be found here: Members | ARCO
The current retirement living market
With the continued growth of the retirement living sector and changes in the wider property market, providers are increasingly offering different ways of structuring event fees and ongoing charges.
Traditionally, the event fee becomes payable when the property is sold. However, some providers now offer an option for the fee to be paid on purchase instead, sometimes referred to as an initial services fee.
Other providers may offer different combinations of ongoing and deferred charges, for example a fixed or capped service charge during occupation coupled with a different event fee becoming payable on resale. This can give prospective residents a choice as to the financial structure that best suits their individual circumstances.
Event fees payable on sale
Traditionally, event fees payable on sale are calculated as a percentage of the property value and can be linked to the length of ownership.
Some leases provide for:
- a stepped percentage structure during the first few years of ownership; and
- a fixed or maximum percentage that applies thereafter.
This can mean that the longer a property is owned, the higher the event fee becomes, up to the maximum provided for within the relevant lease.
The precise calculation varies between providers and schemes, which is why it is important for buyers to understand the provisions applicable to the particular property they are purchasing.
Event fees payable on purchase
Where an event fee is payable on purchase, it will generally be calculated by reference to the purchase price and paid by the incoming owner when the property is acquired.
This percentage may be set towards the higher end of the percentages that would otherwise become payable under a traditional time-based event fee structure.
The benefit is that the relevant event fee is dealt with at the beginning of ownership rather than becoming payable from the proceeds when the property is subsequently sold. However, it means that buyers need to take the additional upfront cost into account when considering the affordability of their purchase.
Paying less now, but more when you sell. How can this work?
Some retirement village providers offer residents a choice over how their ongoing and deferred charges are structured. Under one option, a resident may pay a reduced, fixed or capped service charge while living in the property, in return for a higher event fee becoming payable when the property is eventually sold.
Put simply, part of the cost of maintaining and investing in the village can be deferred until the property is sold, rather than necessarily being recovered entirely through ongoing charges during the resident’s occupation.
For some residents, this can be attractive because it allows them to retain more of their income or savings during retirement while providing greater predictability over their regular expenditure.
The important consideration is therefore not simply the eventual event fee in isolation, but the overall financial model and the costs and benefits it provides throughout the resident’s ownership.
Why are event fees charged?
Event fees can form an important part of the long-term financial model of a retirement community.
Depending on the particular village and charging structure, providers may use the model to:
- support the long-term maintenance, improvement and replacement of village facilities;
- help provide greater certainty over residents’ ongoing costs, including where service charges are fixed or capped;
- reduce the prospect of residents facing unexpected demands for significant capital expenditure or major works during their occupation; and
- cover the provider’s role in assisting with the future sale of the property, where applicable, potentially removing the need for a separate estate agent’s fee.
An event fee is therefore best considered as part of the overall financial structure of a retirement community, rather than simply as a standalone charge.
Understanding both the fee that will ultimately become payable and what the wider charging model provides during occupation is an important part of assessing the overall financial arrangement.
A shared interest in the long-term success of the community
There is another important feature of some event-fee models being the potential alignment of interests between residents and the retirement community provider.
Where a provider’s future income includes a percentage-based event fee on resale, the operator retains a financial interest in the long-term success and desirability of the village. This can provide an incentive for the provider to continue investing in the scheme, its facilities and its overall appeal.
A well-maintained and attractive community benefits existing residents and future purchasers alike, while the provider’s continuing financial interest in future resales can encourage a longer-term approach to investment in the community and value.
The question for a purchaser should therefore not simply be, “How much is the event fee?” It should also be, “What does the overall financial model provide, and what ongoing or unexpected costs might it reduce while I am living in the village?”
Why you should consider event fees carefully
While event fees can play a positive role in the wider financial model of a retirement community, they can also represent a significant financial commitment.
The level of event fee varies considerably between schemes and according to the particular terms of ownership. Before proceeding with a purchase, it is therefore important to understand what will become payable and to consider how an event fee, whether payable on purchase or sale, may affect:
- your long-term financial position; and
- your estate planning arrangements.
A sale may take place many years after the original purchase and, as a result, the event-fee provisions can sometimes be overlooked when executors or family members later come to deal with the property.
We therefore recommend that clients retain clear records of the event-fee provisions and ensure that their executors or family members are aware that a fee may become payable on a future sale.
Our role as your conveyancers
At Michelmores, we regularly advise clients buying and selling properties within Retirement Living Villages/Integrated Retirement Communities.
As part of the conveyancing process, we carefully review the legal documentation relating to the property and:
- identify any event fees and the circumstances in which they arise;
- explain how the fee is calculated and when it is payable;
- consider the fee in the context of the wider charging structure;
- advise on the long-term financial and practical implications; and
- ensure that our clients are able to make an informed decision before committing to the purchase.
For us, the important point is not simply identifying that an event fee exists. It is making sure that our clients understand how it works, why it is there and what it means for them both during their ownership and when the property is eventually sold.
Need advice?
If you have any questions about event fees or retirement living arrangements, please contact Louise Peters or Daisy Palmer-Brown, who will be happy to assist.
