RETIREMENT VILLAGES: WHAT DO I NEED TO KNOW?
January 8, 2018
Moving into a retirement village can be an attractive option for many people – it’s an opportunity to downsize your living arrangements and to increase your social activities. It can be a hugely fulfilling and enjoyable stage of life for many retirees, but sometimes it’s not as straightforward as it seems. In this article, we take a look at what you need to know if you’re considering buying into a retirement village.
Retirement villages and aged care facilities: what’s the difference?
Retirement villages are complexes that have residential units and common areas, all on common land. They don’t receive government funding and are privately operated. There are specific laws that regulate retirement villages in South Australia.
The Office for the Ageing (OFTA), which is part of SA Health, is responsible for administration of those laws.
Aged care facilities are regulated and funded by the Federal Government and are subject to federal laws. Retirement villages don’t necessarily require an aged care assessment.
Facilities that offer In-home care are known as supported residential facilities (SRSs). SRSs are not commonly offered in retirement villages, although some offer serviced apartments which are also licenced as SRSs.
This means that if you are considering buying into a retirement village, you need to carefully consider your care requirements because you may not be able to access the level of care that you need in a retirement village.
Types of Retirement Villages
There are different types of retirement villages and interests that may be purchased, for example:
Resident funded independent living
Units are sold at market value and the resident enters into a lease or licence agreement to live there and use the common areas. When the resident leaves the village, the administration may retain a percentage of the sale price.
It is important that you have a full understanding of how the refund will be calculated and any other costs associated with the re-licensing.
A maintenance fee is usually charged which covers maintenance of the units and any other services offered by the village during residency. Residents pay for other expenses such as utilities, contents insurance and telephone.
This accommodation is popular with people who don’t require residential aged care but wish to live in a supported environment in which services such as linen laundering, cooking of meals and cleaning maintenance services may be provided.
Again, a resident in a serviced apartment doesn’t own the apartment but enters into a lease or licence agreement and when they leave they pay an administration fee to the operator who may return a percentage of the sale price.
Residents usually pay for their own utilities and outgoings.
Entry contribution – independent living.
These units are usually administered by not-for-profit community and church organisations. They are ideal for those with limited assets or funds who wish to have more financial freedom after selling their homes.
The entry contribution varies depending on the location and conditions for any refund defined in the contract.
The resident pays a weekly maintenance fee and the maintenance of the unit is the responsibility of the organisation. The resident pays for their own outgoings and utilities and a maintenance fee is usually paid from the Aged Care Pension.
Legal Ownership Structure
When a person buys residential land, their ownership is registered and protected under the Torrens Title system. Their interest as a registered proprietor is noted on the property’s Certificate of Title.
This differs from the arrangements for retirement villages in which there are four possible types of legal arrangements for ownership:
Occupancy rights arise via lease or licence and are the most common arrangements. The resident is purchasing the right to occupy the unit, not to own the land. That means that residents aren’t required to pay taxes on the land.
Direct ownership is similar to that of strata title or community title in which a person owns a freehold interest in a unit of the property.
Indirect ownership is less common and involves a resident owning an indirect unit of the shares in a company or trust and ultimately having the right to occupy a residential unit or facility for that purchase.
Other arrangements are far less common. Legal advice should always be sought before entering into such arrangements.
Financial and contractual arrangements in retirement villages
Making financial arrangements to purchase an interest in a retirement village is a key part of the process. In South Australia, the most common forms of financial arrangements are:
- Resident funded units which sell for market value. An amount may be returned to you, depending on the terms of the contract; and
- Entry contribution units in which you make a donation to the operator upon entry.
Many operators charge a retention amount, which is a charge that you are required to pay if you leave the village. For example, it may be 35 percent of your upfront payment if you exit after three years. Retention amounts vary from village to village.
Sometimes, residents have complaints about operators of retirement villages. If a complaint can’t be resolved by the operator, the resident can take their complaint to OFTA.
The South Australian Retirement Village Residents Association can provide advocacy and lobbying services on behalf of residents.
What questions should I ask before buying into a retirement village?
It’s a big decision to buy an interest in a retirement village and so you need to be certain that it’s for you. We recommend that you seek answers to the following questions before taking the leap.
- What is the purchase price and what does it entitle you to? For example, does it entitle you to use of the unit, common areas, private garden area and facilities?
- What is the settling-in period? If you elect to leave the village, what will you be obliged to pay in costs and standard rent?
- What are my rights to cool-off? That is, to terminate the contract?
- If personal services are provided, are the details written into the contact? Are they fully described including how they are to be funded?
- If there are ongoing or recurrent charges for maintenance fees and what do these charges and fees cover?
- What are you required to maintain at your own expense?
- What is communal property and who else may have access to it? Is it strictly for resident use or can it be hired out?
- If the retirement village is still under development, is there a written statement about the commitment to erect all facilities and is a time frame included?
- What are the terms and conditions if you leave your unit for a short-term or long-term basis, for example for a hospital visit, stay or holiday?
- Are you required to refurbish the unit if you decide to leave it?
- Can you clean and maintain the unit yourself? Or can you afford to pay someone to do so?
- If the operator arranges refurbishment, do you have any say about the costs?
- If you require a high level of care, can you apply for an early refund? How does that work?
- What happens if you die whilst a resident? What are the responsibilities for your loved ones or executor if this happens?
- When you leave, will the refund be current market value or the amount paid on entry?
- If the resident moves out, what percentage is returned as profit by the administrating authority? How does this change over time, for example 12 months, 18 months, 2 years, 5 years, 8 years, 10 years?
- Upon what is the retention amount based? Is it the amount received by the new resident or the previous amount paid on entry?
- What other money is retained from the premium, for example recurrent charges, advertising costs, management fees, refurbishment, capital replacement fund, depreciation.
- When do you have to vacate the premises after giving notice of an intention to leave? How long do you have?
- If your estate is entitled to receive a refund, when will it be paid?
- What are the cooling off rights after signing the contract?
Buying into a retirement village is a big decision and so it shouldn’t be taken lightly. Sometimes it can be difficult to know whether you have fully understood everything, especially because the contracts for purchase can be complex. That’s why it’s a great idea to get legal advice before you sign. Websters Lawyers has an excellent team of lawyers who can provide timely advice on the contract and can also advise you of your cooling-off rights.