Signing a retirement village contract? What’s your exit strategy?

Retirement villages often offer a good alternative to home ownership for people who want or need a convenient and less demanding place to live.  Prospective residents should, however, be aware of what they are signing up for, and in particular what will happen when they eventually leave the village.

How Retirement Village contracts work

The starting point is to understand that a resident in a village does not own their unit, and is not a lessee or tenant.  The resident occupies the unit under a licence contract with the village operator, and has no interest in the property itself.  The rights of the resident to receive a repayment when leaving the village arise only out of that contract.  The law does, however, in some respects give residents greater security than tenants.

Typically, a retirement village contract requires the resident to make a lump sum payment to the operator when the contract is signed, and this is often treated as a loan by the resident to the operator for legal purposes.

What happens if I leave the Village?

When the resident leaves the village, the process of calculating the repayment can start with the amount of the loan paid by the outgoing resident, the amount of the loan which the incoming resident will actually pay to take over, or an estimate of the “market value” of a new contract to occupy the unit.  Various deductions are then made from this starting figure.  These can include:

• a fixed percentage of the amount, depending on how long the resident has been in occupation (this can be as much as 35%);
• costs of refurbishing the unit (even if the outgoing resident thinks the unit is fine as it is);
• costs of “marketing” the unit to prospective incoming residents; and
• several more fees and charges.

The result is that the amount of the repayment is often far less than the starting figure.  Residents who do not obtain advice regarding their contracts (which are lengthy and sometimes complicated documents) may not appreciate just how much is likely to be deducted from the starting figure.  This can be particularly important if the resident needs a substantial amount of money to move to other accommodation, whether it be another retirement village or an aged care facility.

If the starting figure is the amount of the loan which the incoming resident will actually pay to take over, or an estimate of the “market value”, the outgoing resident may get some benefit from an increase in the “value” of the right to occupy the unit over time, but even so that may be outweighed by the deductions then applied.  Bear in mind that the outgoing resident rarely has much say in how much money the operator asks from prospective new residents – too high a figure and it may take a long time to find a new resident, too low and the outgoing resident loses due to a lower starting figure.

The other common problem is delay.  If the calculation of the repayment is based on the amount which the incoming resident actually pays, many months may pass before that amount is known.  The law does give some protection to residents moving into aged care facilities in this situation, but if the resident is moving to some other sort of accommodation, a delay in the release of the funds can be a serious problem.

There are other factors to be considered in entering a retirement village as well.  It is best to get advice so that you know what you are agreeing to, and you can plan your exit strategy.

Get in touch

TGB’s Real Estate and Property lawyers have extensive experience in a range of contracts and transactions, including when dealing with Retirement Villages. Get in touch with us before signing your Retirement Village contract, so you have a complete understanding of all factors that may affect you.

https://tgb.com.au/enquire/get-in-touch/

Adelaide: (08) 8212 1077

Perth: (08) 9211 5800

Darwin: (08) 8941 7814