Buying into a Retirement Village

30/09/2024

What is a retirement village?

A retirement village is a group of dwellings – which may be apartments, individual villas/townhouses – or a combination of both.
It is important to note that there is no such thing as a “standard” retirement village complex. Although governed by strict legislative requirements, each complex is conducted individually.
Occupation of premises also comes with varying levels of service – either completely independent living or with varying levels of medical/lifestyle support.

Typically, such facilities may provide other services such as:

  • Access to a community centre/library
  • Swimming pool/tennis court(s)/gym/bowling green etc
  • Cinema
  • Dining
  • Community bus – with excursions etc

It is important to note that developments designated as “Over 55s” are NOT a retirement village. These developments are only restricted to residents being over the age of 55 years. It is otherwise a normal “strata title” group of residential units (usually villas/townhouses).

The conduct of “retirement villages” in New South Wales is regulated by the “Retirement Villages Act 1999” – which gives significant protection and comfort to the elderly people who buy into these facilities.

Our observation over a considerable period of time is that the operators of retirement villages display understanding and are sympathetic to the needs of the incoming residents. As an example, the interested resident is often “asset rich” (the unencumbered home that they have lived in for decades) – but “cash poor”. Typically they are unable to immediately provide a 10% deposit to secure their future residence. It is rare that a retirement village will not “reserve” the future residence on a minimum deposit and allow the new resident a reasonable time to sell their current home.The new residence will be the final “home” for incoming residents. With this in mind it is critical that the new resident is comfortable and content once they take occupation. It is recommended that the intending resident confer with existing resident(s) to ascertain their living experience. The operator will, if so requested, usually assist in facilitating such a meeting.

What does the Resident Actually “Own”

There are 3 different categories of “ownership”

  • Strata Title
  • A ‘long term lease” – which must be registered on the title to the village – at nominal rental ($1.00 a year)
  • A “licence to occupy”The important difference between the 3 is that the latter 2 (lease or licence) do not attract stamp duty – saving 10’s of thousands of dollars.The disadvantage of the lease/licence structure is that there is no “title” per se – meaning that there is nothing to offer as security for a loan (i.e. a mortgage)Otherwise, the lease/licence arrangement is quite secure and protected by provisions of the Retirement Villages Act 1999.

General Inquiry Document and Disclosure Statement

The operator of a Retirement Village is required to provide a detailed “General Inquiry document” and “disclosure statement” to every intending new resident. These documents set out:

    • details of the ongoing charges
    • departure fees and how they are calculated
    • financial information on the actual village
    • the facilities available.
    • Details of insurances
    • Condition report for the premises

The operator cannot enter into any contract with an incoming resident for 14 days after this General Inquiry document and disclosure statement are provided.

Cooling-off Rights

In addition to the 14 day “consideration” period after the provision of the “General Inquiry document” and “disclosure statement” the new resident also has

    • A 7 business day cooling-off period after entering into a village contract. This cooling off period cannot be waived. If the resident exercises this right to cool-off, then all monies paid are refunded.
    • A 90-day settling-in period. This period commences on the day a resident is entitled to occupy the residential premises – irrespective of whether or not the resident actually takes occupation. If the resident exercises this right to terminate, then all monies paid are refunded – but the resident may be liable for recurrent charges.

Departure Fee

Upon the resident departing the complex it is normal that a “departure fee” be paid to the operator – as deduction from repayment of the incoming contribution. This departure fee is calculated as a percentage of the ingoing contribution – although sometimes it may be calculated on the incoming contribution of the new resident. The annual per centage amount is calculated daily – but with a maximum. As an example, it may be 5% for each year – but a maximum of 25% after 5 years. In this case, if the resident was in occupation for 10 years then the amount of the departure fee is limited to just the first 5 years.

Another factor to consider is whether, or not, the resident receives the capital gain (or suffers a capital loss) upon the “sale” of the facility to a new resident. This will be clearly set out in the disclosure documents and contract.

Sometimes a resident needs to move to another accommodation unit (i.e. a higher level of care) within the same or an associated complex run by the same operator. In such circumstances the departure fee is paid just once.

It is important to note that these arrangements are unique to each complex. The intending resident should seek independent advice to ensure that there is no misunderstanding from the outset.

Can a Resident be forced out of their Accommodation?

The short answer is “NO”.

The retirement villages legislation in New South Wales is very strong in its protection of residents of Retirement Villages. A resident can only be removed by an order of the government tribunal. The operator of the village must provide compelling evidence that the resident is in such a serious medical condition that they require high level care and are not capable of looking after themselves. The tribunal only issues such orders if it has absolutely no doubt that this is the case, and having regard to the transfer of the resident to other appropriate residential premises.

DISCLAIMER. The comments in this document are general only and should not be relied upon for all circumstances. Parties should rely upon specific advice for their own circumstances

WRITTEN by Paul Denny

Paul denny has over 45 years conveyancing experience and has assisted over 30,000 clients with their property transactions.

Contact us today on 02 48 111 554 or email info@bowralconveyancing.com.au to discuss how we can assist you with your conveyancing needs

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