A retirement village is an option you may consider as you get older. There are many factors to consider and the paperwork can be overwhelming. It’s not uncommon for the contract and related documents to be centimetres thick. You might also be selling your existing home to fund the move. Before you sign on the dotted line it’s crucial that you seek advice from at least two people, your lawyer and your accountant/financial planner.
There are many financial aspects to consider: possible loss or reduction of pension entitlements because of changes in your asset structure, additional expenses associated with living in the retirement village, how you’ll be impacted financially if you need to leave the village to move into an aged care facility and a likely reduction in the value of your estate.
There are also many legal aspects to consider. These aren’t just set out in the contract you’ll be asked to sign, but also in legislation and the rules of the village. In New South Wales, the governing legislation is the Retirement Villages Act 1999 (NSW). Interestingly, the laws differ between each Australian state and territory.
What type of interest am I buying?
This will differ, depending on the retirement village. For some, you will purchase a strata title and receive a title deed. For others you’ll enter into a long-term lease, which may or may not be registered with the Office of Land and Property Information (formerly the Land Titles Office). In some cases your right is known as a licence rather than a lease and this will not be registered.
Will I have to pay an exit fee or departure fee when I leave?
Yes, most likely. There is no set fee but it’s often a substantial amount. It differs between retirement villages and depends on the terms of your contract. It’s usually calculated as a percentage of your entry payment each year up to a maximum number of years. For example, it could be 5% per year for a maximum of seven years. This is just one example and there are many possibilities. The exit fee, or departure fee, is generally payable when you leave the village to move elsewhere (by choice or medical necessity) or upon your death.
Do I receive a benefit when I leave, if the value of my accommodation has increased?
The resident who takes your place in the retirement village might pay a greater entry price than you did. Whether or not you benefit depends on the terms of the contract you signed when you entered the village. It’s vital the contract is checked for these details. It may be that you and the village operator share any capital gain but it’s also possible that all of the gain passes to the operator. Equally, you might be liable for a capital loss if the next resident pays less than you did. Understanding these provisions is very important. If you ever wish, or need, to move to other accommodation this may impact where you can afford to go.
Who decides the sale price when I move out?
This depends on the terms of your contract. In many cases, the retirement village operator determines the price the next resident pays and will be responsible for any marketing. In some circumstances, for example if you hold a strata title, you may be able to list your dwelling with a real estate agent of your choosing and determine the listing price. As always, this depends on the terms of your contract.
What ongoing fees will I need to pay?
The ongoing fees in retirement villages are generally known as recurrent charges and these contribute to the operating costs. You may have to pay recurrent charges fortnightly or monthly. It’s important that the contract is carefully examined to determine the current charges – and keep in mind that over time they will increase.
When you leave the village (because of your death or because you move elsewhere) you generally need to continue paying recurrent charges for up to 42 days. It may be longer, depending on the type of interest you have as a resident. Keep in mind if you buy into a retirement village that gives you a strata title, you will also be liable for strata levies.
How secure is my tenure in a retirement village? Can I be forced to move out?
Often the operator will have some rights that require you to leave in certain circumstances. The extent of this depends on the type of resident’s right you have (for example whether it’s a lease, licence or strata title). In some circumstances, the operator can apply to a tribunal seeking an order requiring you to leave the village. This might be because your health has declined and the services provided by the retirement village are no longer suitable. Or it could be because the operator alleges you have breached the terms of your contract. Something else to consider is what would happen if the village operator got into financial trouble?
Talk to our Elder Law team on 02 49293995
This article covers just some aspects of the contract you’ll need to sign if you plan on moving into a retirement village. You’ll also need to consider the extent to which you may be liable for reinstatement or renovation of the dwelling when you move out, when you’ll receive your refund on exit, and the day-to-day rules affecting your life. For example, can you have a pet or overnight visitors? If so, for how long? And are there requirements to notify the village if you go away?
Just like buying a house or a unit, purchasing an interest in a retirement village is a serious step that requires both financial and legal advice so you can be fully aware of the consequences, your rights and obligations.