If you have retired, the children have left home, and your home is slowly becoming more of a hindrance than a joy, it is a good time to explore “downsizing” and enjoying the golden years with peace of mind. A retirement village can be a good option.
What is a Retirement Village?
A retirement village is a place that offers accommodation and caters for people in their later retirement years. Many villages offer communal facilities and services for the use and benefit of residents. There are also rest home / residential care villages for those who require hospital level care, and this is assessed by your local District Health Board.
The Retirement Villages Act 2003 together with the current codes and regulations govern the structure and legal obligations and requirements of retirement villages.
Occupation Right Agreement
Many villages allow residents entry to their accommodation based on an Occupation Right Agreement (or Licence to Occupy). This Occupation Right Agreement is a contractual right for a resident (the person or persons purchasing the right / licence) to live and stay in the retirement village. This differs from the traditional type of ownership because:
- The right is a personal right to you;
- You cannot transfer your ownership to another person;
- You generally will not receive any capital gain (or loss).
Some important points to note:
- You will need to pay a service fee (generally weekly) for your contribution towards things like maintenance, rates, insurances, repairs, security, etc. Some retirement villages fix this fee for you – but you should check;
- When you buy into the retirement village, you will be required to pay an entry payment (the purchase price). From this entry payment, after you have permanently vacated the village you (or your estate) will receive the entry payment less a deduction of normally between 20% to 30% (which is the village’s deferred management fee). This fee normally amortises over the first few years which means that there is an amount equal to, for example, 10% per annum of the entry payment which accrues to the village on a daily basis up to when you vacate the village (up to the maximum deferred management fee the village has set out).
An example is below:
- you have been in the village 5 years;
- The deferred management fee accrued at 10% per year to the village, up to a maximum of 30%;
- the entry fee / purchase price you paid was $500,000.00;
- you then permanently leave;
- the amount you / your estate receive is $350,000.00;
- the village keeps the $150,000.00 being the 30% deferred management fee.
You will be given four key documents:
- Disclosure statement;
- Occupation Right Agreement;
- Code of Practice; and
- Code of Residents’ Rights (which contains information setting out your rights in relation to complaints, disputes and services).
Requirements
You will need a valid Will and Enduring Powers of Attorney for both personal care and welfare, as well as property, as part of your Occupation Right Agreement obligations.
The village will often require a medical certificate from your doctor as part of the village approving your acceptability for entry to the village.
Benefits
After you sign an Occupation Right Agreement, you have the benefit of a 15 working day cooling off period – this means, if you change your mind in that time for any reason, you do not need to proceed with the agreement and your deposit (if any paid) would be returned to you;
- Entering into a retirement village is not an investment, it is a lifestyle choice. You can choose whether to enter into a retirement village, or not;
- Less maintenance. The village takes care of the upkeep and maintenance of the grounds and communal areas;
- Easy access to facilities and services depending on what the village offers;
- Your friends may already have relocated to the village you wish to reside in.
Things to consider
- You will need to meet the age requirements of the village (normally 70 and over);
- There are time limits on how long a guest or family members can stay with you and you generally cannot lease your villa/apartment/townhouse if you are away;
- A lawyer will need to see you to independently advise you in respect of the Occupation Right Agreement;
- In many cases, people will need to sell their home in order to pay for this Occupation Right;
- You should consider whether the village has care facilities to cater for you and or your spouse if your health declines (or would you need to move and if so, how would that impact you)?
- Consideration should be given to what you need and want in your retirement years and you should undertake your due diligence. Visit the village at different times, have a chat to the other residents and staff, ask questions on anything you need or want to know and ensure you understand what you will be charged;
- Consider available funds. You will often still be required to pay the maintenance and repair costs (and your own outgoings) on the interior of either your apartment, villa or townhouse (as well as the service fee);
- Some villages do not allow pets, but others do with prior written approval (if this is important to you, you should check with the village).
Buying into a retirement village is a little more complex than buying a traditional home. However, at Sharp Tudhope we are experienced in these arrangements, and we can help guide you through this purchase.