A lifestyle choice NOT a financial investment
Retirement Villages (“villages”) tend to be resort-like gated communities of older people usually over 70 years; approximately 12% of all over 75 year olds live in a village.
Once settled, I have yet to meet a friend, family member or client who does not consider it as one of the best moves that they have made, commenting positively about the buildings, facilities and available activities, help available 24/7 and no responsibility for exterior maintenance. This lifestyle comes at a price - generally known as the Deferred Management Fee, usually capped at between 25 to 30% of the purchase price after 5 to 10 years of occupation, and any return is devalued by inflation.
A move into a village is complex and for older persons is possibly their remaining most important life decision. Whilst Lawyers must give advice on the Occupation Right Agreement (ORA) for the unit, villa, townhouse, apartment, serviced apartment or care suite being purchased (“unit”) and there is a legal cooling off period of 15 days (some companies allow up to 90 days after actual occupation), lawyers are usually presented with signed purchase contracts.
Most clients and their families have made thorough enquiries prior but there is considerable benefit in speaking to us first to ensure:
- All the alternatives have been considered.
- There are no financing hiccups (e.g. the funds are from a Family Trust).
- The ownership structure (a right of residence, not an interest in land, for life or until more care is required) and long term financial implications are fully understood (including by your family).
There are both very large village companies and smaller villages and there are significant differences which we recommend that you carefully compare prior to signing a purchase contract:
- Are there care and hospital facilities (including a dementia unit) for which you would have guaranteed priority?
- What are the terms, ongoing and additional costs of moving from your unit into a care facility including if your spouse/partner remains in the unit?
- What is the cost of the available support services (e.g home and shopping help, assistance with medication) and how are they increased?
- Is there a Registered Nurse onsite? Most have emergency call buttons; pendant alarms are best.
- Imagine yourself not as a fit 70 year old but a frail 90 year old. Have the village and unit facilities to assist with your aging e.g. easy walker/wheel chair access and to light switches/benches etc.?
Ensure full disclosure of your current health details as the village can terminate the ORA on medical advice that you cannot safely cope in your unit.
- Who pays for utilities? Is there provision for increases in the weekly or monthly fee or suspension if you are absent (e.g. hospital). These fees cover rates, insurance and village operating costs e.g. staffing, security and maintenance. Some never increase, others are based on the superannuation increase, some have no limit. How long after termination notice do you continue to have to pay? Is there a sinking fund for maintenance that to which you must contribute? Be alert to a possible reduction in services or facilities provided rather than fee increase.
- Alterations to your unit usually require the village’s consent and on termination need to be returned to its original state. Most villages require you use their staff and contractors at your expense.
- Are there plans for future development at the village (including the purchase of adjoining properties)? If so, apart from the dust and noise, will that detract from your vista?
It is very important that you and your family are aware of the financial terms of the ORA and that the sale process is controlled by the village as there can be a delay of many months before the unit is sold. This can be very stressful if you need to move into care. Some villages will lend against the amount you may ultimately receive, but it is essential these matters are fully investigated and understood:
- Very few villages allow residents capital gain on termination despite in the current market your refurbished unit will be sold for significantly more than you paid for it. Some ORAs require your contribution to refurbishment. These issues can create much angst so it is essential that there is full understanding from the outset.
- Some villages require you to take any capital loss; as more villages are established this may become more common.
- Check the disclosure statement which should show the estimated financial return on termination and the current sale prices and timeframes.
- What provision is there for temporary accommodation after a fire or earthquake? Will the amount you receive be sufficient for the purchase of another property (prices will likely have risen)?
- If you are considering a smaller village ensure that it is registered and obtain details of the Statutory Supervisor, and the Deed of Supervision.
Problems can arise where your purchase funds are in a Family Trust as ORAs are personal to residents not trustees. Does the Trust Deed allow purchases of a “wasting investment” (due to the Deferred Management Fee) or provide for the gifting or distribution of the Deferred Management Fee? The village’s agreement to pay the Trust on termination will be required.
Visit the villages and units being considered several times as their accommodation, services management, culture and structure can differ:
- compare facilities and ongoing costs including reading the Disclosure Statements, Audited Financial Statements and Budgets.;
- read Residents Meeting Minutes and past newsletters;
- importantly talk to existing residents and ask about the good and the bad. Friends referrals often impact on your decision; a waiting list is a positive indication;
- take your time, especially if you are recently bereaved;
- although the villages are often resort-like (for example a swimming pool and sauna) what facilities will you actually use?
- Read the Village Rules and the Policies for Complaints and Disputes, (how many complaints have there been in the past year?), Fire and Safety Management, the Management Agreement between the village owner and operator and the Code of Resident’s Rights.
- There are usually rules on laundry and aerials (to keep the village tidy) and how long visitors, (including a new spouse or partner) can stay. Can you keep a pet?
- It is standard for villages to require residents to have up to date Enduring Powers of Attorneys and Wills.
As well as consulting with us and asking questions about all the documents you or your family may have asked for and read, other useful information includes:
- The Retirement Commission Booklet Thinking of Living in a Retirement Village (includes a checklist of financial and lifestyle considerations)
- Age Concern
- The Retirement Villages Association
- The Registrar of Retirement Villages
Villages are a business and the ORAs weighted in their favour, but for many retirees they are an ideal option and the lifestyle for many provides value for money (whilst not being an investment) PROVIDED that you get our full advice beforehand.