Making the Best Decision

Decisions around retirement villages are important and can be very daunting. There are a number of retirement village ‘structures’ to consider which can further complicate the issue. Different villages are managed in different ways and offer a variety of housing, facilities and services.​

If you are intending to live in a retirement village, you will be facing lifestyle and investment decisions and will find it is very different from buying a house. To help you make these important decisions, you need to know what you are looking for, and have the information to judge whether or not you have found it. This article, is the first in a series of three that looks at what you need to consider before you make a decision. The series will include:

1. The costs of retirement villages and how they are structured;
2. The legal framework of the Retirement Villages Act;
3. How residents and intending residents are protected; and
4. What an intending resident should look at prior to buying into a retirement village.

We hope that by helping you to understand these issues you will be better prepared to make the necessary decisions. This series of articles is intended to be an introduction to some of the issues associated with retirement villages, and is not a substitute for professional advice.

Things to Consider

If you are thinking a move is a good idea, then don’t procrastinate. Act early so that you can identify a village in the right location with the right match of services. If health declines suddenly you don’t want to have to take second or third best because you don’t have the time to wait. By acting early you can enjoy being in your new home, making friends and enjoying the facilities and activities. For single people, there is often a marked improvement in their health and enjoyment of life if they are moving from a situation where they are struggling to care for themselves. This can come about through better meals, oversight of taking medications, and improved social interaction with other residents (and staff).

When buying into a retirement village, you need to work through the question “What am I looking for?” When doing this, you need to focus on the property part of the transaction (i.e. exactly what you are buying) and the lifestyle issues. Some retirement villages have just a few units or apartments and basic services, while other complexes have a much wider variety of facilities (which can include a community centre, swimming pool, gym, cinema and/or café). Some villages offer a “continuum of care” where residents can initially live in independent living units and then transition to serviced apartments, rest home and hospital facilities. The type you chose will depend on your individual needs and the lifestyle you wish to have.

The legal issues and financial implications associated with each retirement village are unique. In most cases residents do not share in any capital gain when they leave or transfer within the village and there are an array of costs at different stages of residence. It is therefore a legal requirement to seek professional advice before buying into a retirement village.

The Legal Structure of Retirement Villages

While legal structures vary from village to village, new residents will purchase what is generally called an Occupation Right Agreement (or ORA). This is a contract which can be either (1) a unit title or (2) a lease or (3) a licence to occupy and entitles you to live in the villa or apartment and to have the use of the village’s community facilities. The Occupation Right Agreement will also set out your rights and obligations.

It is important to understand which type of Occupation Right Agreement you are purchasing. A licence to occupy is the most common, and does not provide an interest in land. This usually means that you can’t borrow against the value of your licence and that there are restrictions on what you can do with your unit.

Costs when you Enter

Once you have made a commitment to a particular retirement village, you will be required to pay a capital sum to purchase an Occupation Right Agreement. Under the Retirement Villages Act 2003, there is a cooling-off period, which means an intending resident is entitled to cancel the Occupation Right Agreement, without giving any reason, within 15 working days after the agreement is signed. If cancellation has been made within the 15 working day period, any monies paid must be refunded including interest.

Generally, the amount paid for the Occupation Right Agreement is refunded to the resident (less deductions for fees) when they leave the retirement village and their unit is re-sold.

Ongoing Costs

In addition, a weekly or monthly fee is payable for the operating expenses such as rates, insurance, security and gardening. Some villages offer fees which are fixed for life. Other villages have fees which will be reviewed and reset annually. Some villages include a greater range of services in their fees or offer various care packages. Others leave it up to you to choose and pay for the services you want or need. Make sure you find out the likely total costs of living in a retirement village, and how these costs are charged.

Costs when you Exit

There is generally a Deferred Management Fee (DMF) payable. This is usually a proportion of the amount paid for the Occupation Right Agreement (typically 30% of the capital sum for a period of three or more years). This fee is usually deducted when a resident terminates their licence, the unit is re-sold and the resident is repaid the balance of the capital sum they paid for the Occupation Right Agreement on entry to the village. Most villages do not pay any capital gain to the resident, and most do not charge any capital loss to the resident. However this should be set out in the Agreement and explained by your lawyer.

The Retirement Villages Act 2003

All residents of a retirement village are protected by the Retirement Villages Act, regardless of the particular legal form of their right to live in their dwelling.  The purpose of the Act is to protect residents and intending residents of  retirement villages. The Act is supported by Regulations, a Code of Practice and a Code of Residents’ Rights which also have legal standing. Together, they set out operators’ obligations,  a range of mechanisms for oversight of villages, as well as complaints and disputes procedures.

In particular the Act requires all Retirement Villages:

1. To be registered
2. To appoint a statutory supervisor (an independent watchdog) or to obtain an exemption from appointing a statutory supervisor
3. To provide intending residents with a Disclosure Statement and Occupation Right Agreement and copies  the Code of Residents’ Rights and Code of Practice
4. To provide a process for communicating with and involving residents in the village
5. To provide a process for handling complaints and disputes
6. To ensure independent legal advice is sought prior to signing any agreements.

The Retirement Villages Act ensures that important information is supplied to intending residents before they make the decision to move into a village. It also makes sure that there are proper regulatory procedures in place in order to ensure residents understand their financial obligations and to protect the interests of residents and intending residents.

Part 2 in this series of articles will examine the Act in more detail and explain the duties of the statutory supervisor. Later, part 3 will recommend what questions to ask and actions to take as your final steps in making the best decision before moving to a retirement village.

The information contained in this article is of a general nature only, and does not take into account any individual’s particular circumstances, financial or otherwise. It is not intended to provide a substitute for comprehensive or specific investment advice. Readers should obtain professional, independent financial advice relevant to their individual circumstances before making any decision to invest