Comment: Scots law missing a trick on ‘later living’ projects

Boosting fluidity at the top of the property ladder will energise the entire chain, says Whyte. Picture: contributed

Such a dramatic rise in our elderly population has generated interest from investors and developers in ‘later living communities’ which offer not only high quality residential accommodation, but can include ancillary services such as restaurants, gyms, swimming pools, consultant rooms, on-site GP surgeries, retail space and traditional care home facilities reflecting several levels of support.

These communities may offer a potential solution for older people who want to downsize from the family home as they reach their later years and help to address the “silent epidemic” – loneliness – making residents feel less isolated, while providing the means to live independently in one community for years to come, with flexible and supportive care on their doorstep.

Legal & General is one of the latest investors to commit to later living projects with the launch of Guild Living, which aims to deliver 3,000 new homes over the next five years, equating to a gross development value of around £2 billion. Its first two sites will be in Bath and Epsom, but, as it stands, there is little likelihood that this type of initiative will roll out any time soon to towns like Banchory or Ellon – as the legal structure operating in England to support such a development does not work in Scotland.

In England, a developer of later life residential units and care facilities would typically enter into long lease with individual owners/residents. After payment of an initial premium, the lease would run until the property was sold or a “lifetime event” occurred, such as the owner passing away or permanently moving to other facilities, and which on each lifetime event a further charge known as an “event fee” would be payable based on a percentage of the market value of the unit. This arrangement supports the significant up front investment in communal facilities and provides a steady income return over many years, with the product an asset which could be sold to a third party investor if the developer chose to do so.

In Scotland the legal system does not allow developers to enter into long lease agreements. There is a potential work-around involving standard securities, but under current legislation the provision in certain circumstances for an automatic right of discharge of the standard security (the right of redemption), could disrupt the certainty of long term event fees and therefore dilute the attractiveness of making the initial project investment. Unsurprisingly, this situation is viewed as a deal breaker by potential investors and developers, who would otherwise be interested in committing substantial funds to later living projects in Scotland. The Scottish Law Commission recently published a paper seeking views on the reform of securities granted over land and building in Scotland (the last major review was in 1970). Let’s hope this will consider ways in which changes in the law can encourage, rather than inhibit, the development of later living accommodation.

Most of us working in the property sector would agree with lead commissioner, Dr Andrew Steven, who said: “Too much of the law is old or unduly complex, leading to uncertainty. This discussion paper is an important step towards ensuring that the law is fit for the needs of today’s Scotland.”

There is a widely-held view that encouraging fluidity at the top of the property ladder, and empowering residents to downsize from larger homes, will energise the entire chain all the way down to first-time buyers. This trickle-down effect could go some way to relieving the pressure on Scotland’s housing market.

- Rodney Whyte, partner and residential land development specialist at Pinsent Masons.