If you are thinking about downsizing from the family home and attracted by the lifestyle offered in a retirement village, it is important to understand that purchasing accommodation in a village is not an investment. There are significant costs involved in living in a retirement village, the majority of which are deferred and are payable when you exit the village, by way of deduction from the monies you paid to purchase the accommodation. It would be the rare exception that your received back anywhere near the amount of money you outlaid for the purchase.
Therefore, if you are seriously considering such a move, you should ensure that you have chosen a Village that you believe meets all your lifestyle requirements and that you will be able to live there fairly independently for some time. Specifically you should look for the following:
Location – is it close to family and friends, is there public transport available, are there all the facilities you need close by, such as shopping centres, medical centres;
The facilities the Village offers; the types of activities available, pool, recreation room, whether there are regular social events, or outings offered, on site medical services, village bus;
Alternative accommodation options, such as serviced apartments, connection with nursing care facilities or whether additional personal services such as meals, housekeeping and laundry services are available, should you become unable to live independently;
Are there restrictions on visitors? Can your grandchildren or other family members come to stay and if so for how long? Are there additional charges for guests?
Are the occupants of the Village of a similar age to you? Are the residents and staff members friendly? Will you be comfortable living there?
How the Village Schemes Work
All Retirement Villages are governed by the provisions of the Retirement Villages Act 1999 (Qld) and are regulated by the Department of Housing & Public Works. All Villages must be registered under the Act by the Scheme Operator.
Whilst there are variations between the contract documents for each Scheme Operator, in general you “buy” a right to reside in your chosen Apartment by paying the Scheme Operator a purchase price, often referred to as your “Ingoing Contribution”. That right to reside does not permit you to deal with the Apartment as you wish but is subject to various conditions as to occupancy. In addition, whilst you reside in the Village you pay a monthly fee to cover administration costs of running the Village, usually referred to as a general service fee.
For each year of occupancy, there is also a deferred management fee, sometimes called a termination fee. This fee is percentage based and that percentage increases for each year of occupancy but is capped after a number of years. A usual example would be percentages starting at 5% for the first year, increasing by 5% each year and capped at 30% after 5 years. The amount the percentage is based on can be either the amount you paid for your right to reside or the amount the new resident pays when your Apartment is resold. In some schemes you will receive a share of the capital gain, but also pay any capital loss. When you leave the Villa, in most schemes, if you are to share in the capital gain, you also pay a share of the reinstatement costs, being works carried out by the Scheme Operator to refurbish your Unit to a marketable standard.
Legal Interest You Receive
The legal interest you receive can be freehold, leasehold or merely a licence to reside. Very few Villages offer freehold schemes. Most are leasehold and to a lesser extent, licence schemes. A freehold retirement village purchase comes with the usual costs associated with a residential purchase, such as stamp duty and Titles office transfer fees, and ongoing costs such as rates, water and usually body corporate fees. However, you are still subject to the Village conditions and fees during occupation in the Village.
Leasehold schemes provide you with a long term lease, which is registered on the Certificate of Title for the land owned by the Village. This provides some security for payment of your Exit fee. Licence schemes operate with a residential agreement between the resident and the Scheme Operator. Operators of licence schemes, unless they have obtained an exemption from the regulator, must register a statutory charge over the Village land which gives priority to residents for repayment of their exit entitlement against other creditors. Generally, Villages operated by charities or religious entities are exempt from this requirement.
Once you have decided on a particular Village, you will generally be asked to sign an Expression of interest or to reserve your chosen Unit and to pay a deposit. Under the Act, the operator of the village must provide you with a Public Information Document. That document sets out generic information about Retirement Village schemes and then provides information regarding the particular Village you have selected and drafts of all contract documents that you will be required to sign if you proceed.
It is important to note that a 14 day cooling off period applies to Retirement Village contracts. That cooling off period allows you to terminate your Contract and have your deposit refunded. Depending on the particular Scheme, that cooling off period may start immediately, or once further contract documents are signed. It is important to note that if you are selling your existing home, that some contract documents do not provide for your purchase contract to be conditional on the sale of your property.
It is important to get advice on the documents as soon as you receive the PID to allow you time to terminate if you change your mind or are unable to obtain an appropriate sale for your home. Otherwise terminating your purchase contract may result in the loss of the deposit and possibly liability for an exit fee.
Retirement village contract documents are complex and are vastly different to a standard residential conveyance. We have several lawyers who are familiar with the documents and processes for a large number of retirement village operators, such as Aveo, TriCare, Stocklands, Tall Trees and Seasons and can guide you through the process. If you are selling your existing home then one of our property lawyers would be happy to assist with the legal work for your sale