For some, the decision to downsize and start afresh in a retirement village is liberating. For others it is a time of anxiety and of good byes. What can compound a person’s anxiety is the huge Retirement Village contract and the lease to sign before they can move into their new place. There are a few general things to look out for in Retirement Village contract that are set out below. However, this article is no substitute for actual legal advice relevant to the particular contract you are considering.
What are you actually buying?
There are several ways to buy into a village:
- Leasehold: usually meaning you will buy your unit and lease the land it is on. This is probably the most common way to buy into a village. In addition to your lease you often enter into a service agreement that sets out what the village operators will provide and, importantly, what they will charge you.
- Right of occupancy: another common way to buy into a village, this method sees you buying the right to live in your unit. It is likely you will also need to enter into a service agreement.
- Freehold: meaning you buy your unit- or most probably a villa or townhouse- and the land it is on outright.
- Strata: meaning you buy your lot (ie. your unit) and own a share in common property (such as pathways, pools ect…).
- Rental: occasionally it is possible to rent a unit, but this is not common in private retirement villages.
Work out the total cost
A common difficulty faced by a person comparing the various costs of two villages is that they find themselves trying to compare apples with oranges. This is because there are quite a few fees that are involved when moving into a retirement village. One may have a fairly low daily maintence fee (also called an ongoing fee or recurrent fee) but a very high exit fee. Another may charge almost twice as much per day but when you leave you keep much more of the sale price in your pocket. When you are trying to compare two different villages, jot down all of the fees and do a table showing you what you will pay over 5 years, 10 years and 15 years. This is a good way to find out the true cost of a particular village. A financial adviser that specialises in retirement villages and aged care advice can be helpful in this respect.
Often called the Deferred Management Fee, all villages charge a fee on your exit. Some villages will load this fee in the first few years of your stay, meaning they make most of the fee even if your stay is short. Other villages’ exit fee will increase gradually over time. You need to be aware of how this fee is structures as if you know that you will only stay for a brief period you would do well to find a village that offers a gradual increase to its exit fees.
Selling the unit
Check if the contract allows you to use your own agent and sell your unit. Some contracts will only allow the operators to sell your unit. If the contract also provides that you have to continue paying all ongoing fees until sold finding a buyer might be low on the owner’s priority list.
Other items to watch out for
- High increases in ongoing costs, such as electricity and telephone- in NSW these increases must be in line with CPI, unless either the residence committee has agreed or the increase has been Court ordered.
- Are you allowed a pet?
- Are you allowed to modify your unit if, for example, you need to later on install a disabled access shower?
- Refurbishment costs: some contracts will require you to refurbish your unit before selling it. The contract should state if only a clean unit with any damaged repaired is required or you will need undertake more costly work, such as new carpet.
- Costs of improvement to capital investments trying to be passed on to residents. Residents are responsible for maintenance costs only, not for the costs for capital improvements.
The operators of a village are not necessarily trying to trap people into contracts with hidden costs. In fact they often urge people to get legal advice before signing up. The complex fee structure has developed in part so that villages can remain affordable but still be able to operate as a viable business unless it is run on a not-for-profit basis.
Whether or not moving into a retirement village is the right option for you is a personal decision. However, you do need to be fully informed of all of the financial implications before you sign up. Particularly what your financial position will be if you have to move out of a village and into a nursing home- will you have enough money following the sale of your unit to pay your bond? Try to compare a few different places and request a copy of their contract, lease and service agreement. If you cannot work out the true financial costs of one place over another seek the advice of a financial planner and seek legal advice on the terms of the contract and the lease before you sign up.