All I want for Christmas is… a new form of retirement tenure

On 21 November 2024 the Housing Minister, Matthew Pennycook, announced that the Government intends to ban new leasehold flats and "end the feudal leasehold system for good". 

Leasehold has been the dominant tenure in retirement housing to date but it has never been entirely suited to it, given that the length of most long leases vastly outweighs the amount of time the leaseholder expects to reside in the property. Now that leasehold is to be abolished, this begs the obvious question for the senior housing sector: what next?

Commonhold

The Government's stated intention is to promote a more modern, functional and fit-for-purpose commonhold system as the default tenure for new developments. However, the Law Commission's 2020 proposals on how to reinvigorate commonhold had very little to say about senior housing. The commonhold model of collective ownership of the commonhold association that manages the development doesn’t fit with most modern business models of retirement housing where retirement community operators will almost always be a separate commercial entity. This is for good reason as most retirement leaseholders do not want the hassle of being responsible for managing their own block. 

The most likely solution within commonhold would be to allow an exception for the continued use of long leases in senior housing, as is proposed for shared ownership housing, but this seems sub-optimal given that leasehold is even less well suited to retirement housing than standard private residential housing.

A contractual model

A more logical solution for the senior housing sector would be a contractual model of tenure. In New Zealand a contractual model "occupation rights agreement" was introduced in 2003 and this has been successful in promoting retirement housing as a specialist sector in that jurisdiction. Under the New Zealand model the resident:

• Pays a capital sum on entry, a service charge, and a deferred management fee (also known as an event fee), similar to current leasehold structures; and
• Receives a personal right to occupy for life, with the unit reverting to the operator when the resident ceases to own the unit.

Primary legislation would be required in order to introduce a contractual model, but since the Government is consulting on how to replace leasehold as a form of tenure this appears to be an attractive alternative model for retirement housing.

Rental or rental plus

Some models of rental tenure for senior housing do involve a capital payment being made upfront, but there are regulatory challenges with this model where it involves the taking of a deposit that is equivalent to a proportion of market value.

The future

The Government has said it intends to consult in the new year on the best approach to banning new leasehold flats. There is much to play for and retirement community operators will need to engage meaningfully in the consultation in order to ensure that whatever solutions the Government decides on will work towards the promotion of a vibrant and growing retirement housing sector.