Poland - Life annuity for your flat? UOKiK's report

UOKiK has checked if the rights of senior citizents who decided to transfer their ownership right to the property in turn for the so-called life annuity are truly respected. Activity of such service providers on Polish market has been taken under scrutiny – in total 37 standard contracts and 46 advertising spots. Moreover, the Office pointed how vital it is to make laws for clarifying the position of senior consumers.

UOKiK on regular basis examines standard forms of agreements consumers are offered by undertakings operating in various industries. This year UOKiK has presented, inter alia, the report on inspection of gas suppliers and shadow banking institutions. The latest analysis by the Office regards companies providing life annuity contracts (life annuity obtained in turn for a consumer’s flat). Such offers are particularly focused on the elderly, who in exchange for transfering their property ownership rights to the undertaking, obtain a financial benefit (usually on monthly basis), and are entitled to lifelong residence in their premises. The Office has inspected both standard contracts and advertising spots of all (seven) undertakings opertating on this market, which resulted in drafting the Report on inspection of undertakings entering into life annuity contracts (Raport z kontroli przedsiębiorców zawierających umowy świadczeń dożywotnich).

Agreements

The analysis conducted by the Office revealed that the offer provided by entities active on Polish market concerns life annuity contracts. On the other hand, there are no reverse mortgate contracts, i.e. banking products allowing consumers for obtaining monthly benefits, credit line or one-off payment in exchange for mortgage for the benefit of a financial institution.

In Poland there are seven following companies offering consumers life annuity contracts: Towarzystwo Ubezpieczeń na Życie Europa, Fundusz Hipoteczny Dom S.A., Fundusz Hipoteczny Dom S.A. s.k.a., Fundusz Hipoteczny Gwarancja, Fundusz Senior, Fundusz Hipoteczny Familia and Fundusz Hipoteczny Omnes. They operate based on the civil code and provisions on annuity agreements, disability payments, loan or insurance.

Consumer rights and obligations depend on the entity they transfer the ownership rights to their property. The Office examined in total 37 standard contracts, and challenged 17 applied by five undertakings. Moreover, it instituted proceedings concerning the violation of collective consumer interests against two entities (Fundusz Hipoteczny Omnes and Fundusz Hipoteczny Dom S.A. s.k.a.). Additionally, UOKiK intends to bring actions to recognize clauses applied by TUnŻ Europa, Fundusz Senior, Fundusz Hipoteczny Gwarancja and Fundusz Hipoteczny Dom S.A. s.k.a. as prohibited.

Challenged clauses

The clauses contested by UOKiK concern e.g. making the living of a consumer’s close family members conditional upon undertaking’s consent. By contrast, provisions of civil code clearly provide such possibility, which means that the requirement to obtain a consent of a service provider is an unjustified limitation and goes beyond statutory provisions.

Other questioned clauses regard imposing onerous obligations on consumers – e.g. charging them with costs of essential repairs in a flat or house whereas this should be fulfilled by an undertaking. The only liability of a consumer is to bear the cost of current exploitation and minor repairs resulting from common use of a flat. Moreover, one of these companies imposed, under contractual penalty, an obligation to inform them on assembly held by local community or a housing cooperative. UOKiK took the stance that undertakings acting as a property owner, should obtain such information on their own.

Misleading advertising

UOKiK examined in total 46 advertising spots. Apart from commercials in the press, on the radio, tv and Internet, the Office checked leaflets, billboards and information in writing directed at consumers. Consequently, UOKiK challenged 17 advertisements made by six companies (TUnŻ Europa, Fundusz Senior, Fundusz Hipoteczny Gwarancja, Fundusz Hipoteczny Omnes, Fundusz Hipoteczny Dom S.A.), and instituted proceedings concerning the violation of collective consumer interests.

The contested practices regarded also advertisements implying that consumer rights are protected better that it was in fact. For example, senior consumers were informed that in case of company failing to fulfill obligations, a property would at once be given back to a client. Under the law, there is no such option. To retransfer the ownership rights to a property, it is necessary for an entrepreneur to submit a statement of will, possibly in expceptional cases such agreement may be dissolved by the court. Informing consumers that apart from providing a monthly annuity, a company will pay rental fees (whereas monthly payments were simply decreased by rental fee value) might be misleading as well.

Additionally, senior consumers were unrightly informed that a consumer may let the premises to a third person. However, the analysis by UOKiK revealed that agreements offered by undertakings did not allow such posibilities.

Demand for legislative changes

In its report, UOKiK attracts attention to the fact that it is necessary to introduce legal rules for these consumers who decide to transfer ownership rights to their property.

- The analysis by the Office revealed that the lack of legal provisions on entering into life annuity agreements is the greatest threat to senior consumers. This can prove especially hazardous in case of entrepreneur’s insolvency, because a consumer may lose the right to live in the property – stated Małgorzata Krasnodębska-Tomkiel, the President of UOKiK.

Other threats can be posed by e.g. no supervision over such activity, or no capital requirements for undertakings. For this reason the Office gives a possitive assessment to the draft regulations on life annuity, which was made by the Ministry of Economy and adopted by the Coucil of Ministers on 15th October 2013. It is worth noting that the draft act on reverse mortgage, made by the Ministry of Finance, was adopted as well. Consequently, consumers who decide to use this offer will be granted special protection.

Consumers’ voices

When conducting analysis, the Office addressed at random ten consumers who decided to use the life annuity to express their opinions on concluded agreements. The respondents expressed their satisfaction with decision they made. However, another group of respondents surveyed by commission of UOKiK by Instytut Badawczy IPC* was not unanimous. Out of 1000 of surveyed consumers, there were seven persons who entered into annuity mortgage. Five out of them expressed their dissatisfaction with provided benefits; only one respondent had no reservations.

Furthermore, the survey revealed that only 2% of all respondents would consider using life benefits in the future. A vast majority (86%) would never take such an option into account, as in most cases consumers intend to leave their flats to their families (58%). The survey also revealed that consumers are not aware of the risk involved in entering into such agreements. Six out of seven respondents who concluded such contracts, did not consider potential bankruptcy of an undertaking – 16% of surveyed, potentially willing to benefit from life annuity, was aware of the fact.

Debate at UOKiK

A report drafted by UOKiK will be presented during a debate held by UOKiK and Gazeta Wyborcza, held in Warsaw on 24th October. Representatives of public administration authorities, consumer institutions, associations of entrepreneurs, lawyers and academics will get involved in the discussion. The invited guests will consider which regulations concerning the life annuity market and reverse mortgage, are necessary to provide effective protection of senior consumers. On-line broadcast of the debate will be available at www.uokik.gov.pl.

Read the press release in Polish.