Residential care contracts - consumer rights and the cost of charging fees in advance

Whilst we continue to wait for the Competition and Market Authority’s (“CMA”) wider guidance addressing standards of behaviour towards residents expected of care home providers, the use of large up-front fees and disproportionate deposits has already resulted in significant cost consequences for one care provider. This update is particularly relevant for those operating in the residential care market and social care sector, but the general principles apply to all businesses providing repeat or on-going services to consumers.

We highlighted in June last year that care home providers were at risk of breaching consumer rights protections where they impose unreasonable fee increases and large up-front fees or deposits, particularly where the regular cost of care is charged monthly in advance. Since the CMA published the findings of its market study in November 2017, a number of providers have found their customer contracts subjected to enhanced scrutiny.

We have already seen that the Maria Mallaband Care group has dropped the use of a contract term which required residents to pay one month’s care fees following the death of a resident. Instead, fees will only be charged up to the date of death. In a similar vein, Sunrise Senior Living Ltd will no longer charge ‘several thousand pounds’ of payments in advance labelled as a “community fee”. An average sum of £3,000 was payable and in some instances before customers had secured a place in the care home. The CMA raised concerns that it was not clear to consumers how the fee would be used and that the fee was non-refundable once someone had lived in the home for more than 30 days. After discussions with the CMA, Sunrise Senior Living Ltd has agreed to repay the community fee to some 1,500 residents who were living in their homes for less than 2 years, resulting in more than £2 million compensation being paid to residents.

Although these changes have been described as voluntary by both organisations, we know from our own work with providers that the CMA is investigating and taking enforcement action against those it believes to be in breach of consumer rights legislation. What is clear from the CMA’s ‘constructive conversations’ to date, is that it is not enough for providers to assert that they never rely on or enforce the term in practice. The mere existence of an unfair term is enough for the CMA to take action.

Where social care providers intend to charge fees before services are provided, these should be a proportionate reflection of the costs incurred before the service begins or allow for refunds to reflect the true value of the service received by the consumer. If providers do intend to charge sums which go towards central costs, such as maintaining quality facilities and communal areas. This should be built into the overall fees, so that those residents who stay for a shorter period of time are not unfairly prejudiced by paying towards services which they may not benefit from.

If you have not done so already, it is important to review your customer terms and conditions to check that they are easy to read, do not contain hidden fees and do not risk confusing consumers as to what they’re paying for. We expect these issues to be at the heart of the CMA’s wider guidance when it is published and that they will social care customer contracts generally, not just residential care.

Further information

If you would like to discuss any of the issues raised in this article or to arrange a review of your contracts to ensure you meet best practice guidance, please contact Emma Watt or John Wearing.