Buying a home on a retirement estateGo back
Why the small print matters
Retirement estates or villages are developments built specifically for older people. The services offered on each development will vary – some estates offer a discreet estate manager service for those who want to continue to live independently in private homes. They tend to be in good locations with landscaped grounds, and offer a luxury lifestyle with some support but generally no care. By contrast, some larger villages will offer more on-site facilities, and nursing care available when required. What they have in common is that the properties are likely to be sold leasehold.
John Lavin of Cognatum, a key player in the retirement estate sector, says, “Dedicated retirement properties are becoming increasingly popular with the younger over-55s, people wanting to make a future-proof investment but who are still leading active and interesting lifestyles. It’s widely understood by buyers that a requirement of purchase is that at least one resident must be over 55, but buyers should also be aware that leasehold properties will necessarily have an accompanying lease which will contain a number of clauses, some of which may be unexpected.
“The first thing to check is the length of lease left to run on the property. Leases can be extended, but the process can be time-consuming and expensive. Be cautious of a lease that has under 100 years remaining as this can have a significant impact on the resale value.
“Buyers should be clear about the costs associated with leasehold property. They come in the form of various charges made by the landlord or management company: these are usually necessary and reasonable expenses, and a responsible way of managing leasehold and the owners’ investment, protecting them from unexpected costs. But it’s important that buyers are aware of them prior to purchase, understand some of the jargon used, and include the costs in annual budgeting.
“An ongoing annual service charge which should cover the cost of running, maintaining and repairing the grounds and buildings, any onsite staff and the upkeep of communal facilities. From a budgeting perspective, service charges need not themselves be a cause for concern as they mean you are unlikely to get an unexpected bill for roof repairs, new windows, or any other cost associated with the property structure or grounds.
“Many freeholders charge a ground rent, in recognition that the freeholder owns the land. Historically, any ground rent charged has tended to be minimal, hence the common description of ‘peppercorn rent’. But in recent years, some developers have exercised their right to charge a ground rent, and inserting clauses into lease agreements that mean ground rents increase year on year. There’s nothing wrong with ground rent in principle, but make sure your solicitor checks the lease very carefully for exploitative ground rent practices.
(sometimes called transfer fees):
“Leases of retirement flats and bungalows often include a fee triggered by certain events, such as when the owner sells or sub-lets their property. These fees are typically in the range of 1% of the property sale price but may be as high as 30%”.
Reserve fund contribution:
“This is either an annual charge added to the annual service charge, or is sometimes a ‘deferred’ charge collected when the current owner sells on the property. This deferred charging method is an example of an ‘event fee’ as described above.
The fund is intended to cover significant items of planned maintenance around the property and estate. A well-managed reserve fund (sometimes referred to as a ‘sinking fund’) will build up and deplete as required, so the value of the fund will vary depending on where it currently is in this cycle. Well managed funds though have a repeating, regular contribution to avoid widely varying annual amounts and the unpredictability in monthly outgoings that result. Check how the reserve fund is organised, what items are budgeted for, and assure yourself you’re happy with the arrangement.
“Careful budgeting is particularly important for the retired whose finances tend to be fixed, and these charges, which are set and published in the prior year, do allow residents to plan appropriately. Unwelcome surprises should be few and far between as the funds should be in place to deal with most eventualities, whereas with a freehold property the financial burden is usually unpredictable, and reaction to a problem or urgent need, is solely the responsibility of the owner.
“What is vitally important is that buyers are fully conversant with the extent of the associated costs before committing themselves.
“While finances are a key consideration, costs aren’t the only element of the lease that buyers should be aware of. There are likely to be a range of clauses within the lease that are designed to protect both the leaseholder and the landlord. Do check these carefully to be sure you’re buying into a development that suits your lifestyle. For example, most retirement estates happily allow pets, but don’t assume – check!
“Your solicitor should walk you through a lease before you buy a property, but it’s a late stage of the buying process to be getting surprises. Ask questions at the viewings – the best plan is to ask if you can see a lease before you make an offer, and read the detail carefully before committing yourself.”
All Cognatum properties are sold on long leases with no ground rents or other requirements on owning a property, except that one resident must be over 55 years of age.
For more information:
Cognatum has 60 retirement estates in 21 counties across central and southern England, a total of 1500 retirement homes. All are in prime locations within vibrant market towns or villages, within walking distance of shops and restaurants. Each estate benefits from thoughtful architecture, landscaped grounds, and a dedicated estate manager.
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01386 700068 / 07977 238175