Moving into a retirement village is generally more complicated than purchasing a residential property because of the additional considerations involved such as:
- Ownership structures
- Cost options
- Exit arrangements
although there are obviously benefits such as enhanced security, easier lifestyle and better access to appropriate services and activities, like-minded and similarly aged residents and the friendships they are formed and maintained.
We obviously can’t advise on whether a village or operate is suitable for you or your needs as they may change in the future (you and your family can only do that) but we can advise you on what it all means, legally.
Retirement villages vary in terms of ownership models. There are several major types, including:
- outright ownership (where you actually own the unit or townhouse)
- loan and licence (where the majority of the ingoing contribution is documented as a repayable loan to a village operator in return for a licence to occupy a unit)
- lease or sub-lease arrangement (where you lease the unit from the village operator or sublease it from the village operate who leases it from the owner)
The on-going costs involved after the initial purchase/contribution need to be considered and fully understood. Fees for the additional services, building and maintenance levies and administration costs (as well as contribution to council rates, utilities and strata levies etc) can be added. The amounts and types vary from village to village and between operators.
The contract should also outline any fees and obligations associated with your departure from the village. The ‘departure fee’, ‘deferred management fee’ or ‘exit fee’ is commonly calculated as a percentage paid per year of residency, and is generally capped at a maximum, for example, 2% per year capped at 20% after 10 years. It may be calculated on your entry payment, or the amount the next resident pays to move into your unit when you leave.
The contract can also determine which party or parties benefit from any capital gain on the premises,
Retirement Village legislation
The Retirement Villages Act 1999 (NSW) as last updated by the Retirement Villages Amendment Act 2020 (NSW) applies to ’registered interest holders’ – those who have a long-term registered lease that entitles them to at least 50% of any capital gain (profit) of the sale of the premises. Such residents must sign a contract in the standard form. The standard form is designed to be adapted and used for all types of village arrangements (eg a licence, leasehold etc as noted above).
Although a general enquiry documents is provided to prospective residents enquiring about a village, the following documents must be attached to the actual contract:
- a copy of the Disclosure Statement that was given to the resident;
- the Condition Report for the premises (if one is required to be prepared);
- a list of the village services and facilities;
- the NSW Fair Trading document, ‘Moving into a retirement village?’ and
- the village rules (if any).
The Disclosure Statement is important and contains things such as a table of fees and charges payable and an ‘average resident comparison figure‘ or ARCF to help you understand and compare the financial cost of living in different villages. The ARCF is the sum of the following fees and charges over an assumed residency period of 7 years (84 months), averaged to a monthly figure:
- the total amount of recurrent charges payable under the village contract;
- the departure fee payable by the resident if the premises are permanently vacated at the end of that period; and
- capital gains, if any, payable to the operator by the resident in respect of the unit.
Operators can ask residents to pay a maximum of $50 towards the cost of preparing a contract but they must give prospective residents a copy of the proposed contract at least 14 days before signing it.
The standard contract form does not have to be used where a resident buys a strata or community scheme unit (using a sale of land contract) or in relation to an agreement to buy company title shares.
Cooling off and settling in
All residents have a 7 day cooling-off period after signing the contract. During this time, either party can end the contract (for any reason) by notifying the other party in writing and any money paid must generally be refunded. Importantly, if a resident moves in during the cooling-off period, the cooling off period ends immediately!
All residents are however entitled to a 90-day settling-in period, which means if a resident needs to move out (for any reason) within the first 90 days of their occupation, they only have to pay:
- fair market rent for that period;
- the cost of any repairs for damage (this does not include general wear and tear);
- an administration fee of no more than $200; and
- to reimburse the operator for the reasonable costs of making any alterations or adding any fixtures or fittings you requested to the premises.
No departure fee can be charged during the settling-in period and the amount paid to move into the village will be refunded (subject of course to the terms of the contract).
Before making the decision to move in, you should take the time to read the documents provided, obtain independent legal advice and if necessary, seek appropriate financial advice from an expert.
For further information, please contact McKillop Legal on (02) 9521 2455 or email firstname.lastname@example.org
This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your needs.