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Retirement Communities – Bridging A Gap Worth Bridging

In comparing the UK housing market for older people to that operated in Australia, New Zealand and the United States of America, one thing that is apparent is the extent to which the latter jurisdictions have developed the concept of retirement communities as against the UK.


In comparing the UK housing market for older people to that operated in Australia, New Zealand and the United States of America, one thing that is apparent is the extent to which the latter jurisdictions have developed the concept of retirement communities as against the UK. While warden-led housing has always been available in the UK, it has never been as visible as care and nursing homes.

However, retirement communities are the new buzzword in aged care in the UK at the moment and are set to take off as the new "in vogue" asset class of the aged care space, seeking to bridge the gap between independent living and the care home sector, the latter of which is ever burdened by increased regulation, increasing overheads and increasing demand on bed spaces as the UK struggles to deal with a rapidly ageing population.

What are retirement communities

A retirement community is, in essence, comprised of independent units, flats or bungalows (one or two bedroom) which are built within an enclosed or gated community and designed for occupation by older or retired people. The community will typically have access to a range of care facilities (such as access to an onsite nurse or assistance with day to day tasks like shopping) and communal social facilities (such as bowling greens, movie nights and tai chi).

The idea of a retirement community is that it operates as a bridge between independent living and care homes.

How are retirement communities regulated?

The Associated Retirement Community Operators ("ARCO") is the main body representing retirement communities in the UK. ARCO has published the "ARCO Consumer Code" which is intended to set a benchmark for "good practice" within the retirement community space. The Consumer Code is supported by a compliance framework that is assessed by external assessors and, if a member fails to comply with the code, ARCO can take action which would involve ARCO issuing a non-compliance notice requiring the operator to bring the retirement community "up to code" or risk expulsion from ARCO.

However, membership to ARCO is voluntary for operators and there is otherwise no specific regulatory framework in the UK for retirement communities. ARCO regulation essentially acts as a 'badge of honour' and quality mark for retirement communities, rather than a set of strict legal requirements put in place for the protection of residents. As such, if the standards put in place by ARCO are breached it may be more difficult for residents to seek recompense.

This lack of formal regulation for the sector has led to some retirement communities coming under fire for charging hidden fees. The Law Commission has researched and been critical about the lack of transparency in the "hidden" event fees charged by some retirement community operators, for example when someone leaves the community.

Currently, in the UK retirement community space, there are three main areas of cost to consider: upfront purchase of the property or annual rental, ongoing service charges and exit fees (being fees payable when you leave the community).

It is the exit fees that are and are likely to continue to be subject to scrutiny until a more established retirement community model has become "the norm" in the sector. There are no clear requirements for how exit fees are calculated or their quantum. Some methods of calculation of exit fees can be by taking a percentage of the purchase price or selling price depending on the years of occupancy.

CQC regulation

It is important to distinguish retirement communities from care homes that are regulated by, among others, the Care Quality Commission (CQC).

Whether a service needs to be registered with and regulated by the CQC depends on the activities it undertakes in relation to the residents, rather than the location or the age group it is advertised to. Care homes provide personal care to all of their residents and this is an integral part of the service provided. At a retirement community, however, the main service provided is accommodation suitable for older people, along with some social facilities. This is not an activity within the remit of the Regulated Activities Regulations 2014 and as such CQC registration is not required. However, most retirement villages can also arrange for personal care to be provided in a resident's home; this will almost certainly be provided by a separate company, which would require CQC registration.

While retirement communities do not provide the same level of service as care or nursing homes, they are still operating in a market where their clients are potentially more vulnerable or in need of assistance than others. In order for the retirement community sector to take off in the same way as it has in other jurisdictions, we would strongly suggest that clearer and more detailed regulation is required specifically targeted at retirement communities, even if it is not of the same intensity as CQC regulation. This would be to the benefit of both the operators of retirement communities and their residents, by adding greater credence to the communities and increased security to those living there.

Retirement communities in Australia – a comparison

Contrary to the UK, retirement communities (or retirement villages as they are known in Australia) have been popular in Australia for a long time. Each state and territory of Australia has its own retirement village legislation in place. The purpose of retirement village legislation is to ensure that there is clarity around the rights and obligations of operators and residents, including to protect residents by (i) imposing heavy disclosure obligations on operators (ii) requiring cooling off rights and settling in periods (ii) establishing mechanisms for resolving disputes (iii) regulating certain financial matters and (iv) permitting residents to lodge statutory charges against the property protecting their right to repayment of their loan or incoming contribution.

Typically retirement village contracts with residents are structured as a lease/licence of the unit to the resident in return for the resident making a loan or incoming contribution. There will be service charges applicable through the term of the lease or licence and then, on exit from the lease or licence, a departure fee will be payable and will be deducted from the loan amount repayable to the resident.

An alternative structure is where the ownership is strata title and the resident purchases the unit from the prior owner. The ongoing service fees and departure fee will still be payable and will be levied as charges against the property by the operator.

Retirement communities in the UK – bridging gap worth bridging

With the CQC reporting an fall in the number of bed available in care homes, the challenges facing care homes and the rapidly ageing population, retirement communities would seem to offer a solution that could ease the burden on care homes and the NHS whilst ensuring that older people receive access to medical and social services that they require. An increase in accommodation specifically designed for older people could also reduce the number of accidents in homes and increase the availability of family homes.

Once challenge for the UK will be finding a model that works, ensuring that residents are not exploited by operators while also making the sector attractive to providers. However, one thing that is certain is that retirement communities are here to stay.

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