This is the second article on retirement Villages, Fortune Manning of FindLaw wrote this article a number of years back, still relevant. The editor has been researching the topic also, and I hope to present my views in the next few weeks.
Retirement or Lifestyle Village, which offers you more?
Many people are attracted to a retirement form of living as it is, in most cases, a gated village with interesting well maintained community facilities, such as bowling greens, restaurants, pools and spas and other retired residents for social contact. These are the core elements of a lifestyle village, particularly if only limited medical care is available.
In our view a true retirement village offers in addition the opportunity to move from independent living through to serviced apartments and then to rest home and hospital 24 hour care. This type of village offers the best long term security for those wishing to make a long term decision as to their accommodation.
A move into a lifestyle or retirement village cannot be considered a financial investment, as in most cases 20 to 30 percent of the entry price will on termination be deducted (“facilities fee”) and there will be no entitlement to capital gain. It is important therefore to ensure that the services provided by the village give you value for money.
Retirement Villages Act 2003 (“Act”) Regulatory Regime
If a property falls within the definition of a retirement village under the Act, it is required to be registered with the Registrar of Retirement Villages. The register can be accessed through the Companies Office website under “search other registers”. Your lawyer should make a search of the village to ascertain that the registered documents include the following:
- Deed of Supervision between the operator of the village and the Statutory Supervisor to protect the interests of the residents;
- Occupation Right Agreement (“ORA”) which governs the occupation of the unit/apartment;
- Disclosure Statement which is a precis of all matters that are required to be disclosed under the regulatory regime;
- Legal description of property;
- Certificate of Registration;
- Consent of Statutory Supervisor to act.
Those “villages” which are not registered, are, in the main, those which fall outside the ambit of the Act, and do not provide the services or facilities described above and are simply unit title or cross lease developments and in respect of which you do not have the protections provided under the Act.
The economic viability of the village itself is something that must be considered very carefully. Every operator of a village is an “issuer” pursuant to the Financial Reporting Act 1993 and required to prepare and register audited financial statements. These can be found on the Companies Office register. An operator has an obligation to provide intending residents and current residents with copies of the financial statements upon request.
It may be comforting for you to know with a particular village that those developing or in control of the village will have continuing key roles for the foreseeable future. It is worthwhile meeting with existing residents, village managers and staff to assess satisfaction, compatibility and commitment.
What tenure is being offered?
It is important to know what security of tenure you are receiving for your money. Is it in the nature of a unit title or cross lease? The majority of units or apartments in villages are held through ORAs that do not have a registered interest in the land or buildings and where generally residents do not have control over the sales process.
What happens if the village is substantially damaged or destroyed?
You need to know what happens in the event of significant damage to the village as a whole. What are the obligations on the part of the owner in such cases? The ORA should ideally provide that in the event of substantial destruction of the village such that you are unable to continue to live in your unit you will get back the money you paid without the facilities fee being deducted. You may still be left without sufficient money to purchase another unit in another village if you have not had the benefit of any capital growth during the time you have been resident in the village that has been destroyed.
Where your village is part of a group of villages run by the same operator there may be greater opportunity to transfer to another village without significant extra cost in the event that your existing village is substantially damaged or destroyed.
What are the maintenance obligations?
Intending residents need to know who is responsible for undertaking repairs and maintenance to the village, in the units and the chattels supplied by the operator in the unit. Who is responsible for paying the costs of those repairs and maintenance? In some cases residents are responsible for internal repairs and maintenance of units and operators for the exterior of the units. However, some villages/operators are now taking a different approach and carrying out repairs and maintenance to both the interior and exterior and charging the actual cost to the particular resident. You need to know who is responsible for the replacement of a chattel in your unit once its useful life has expired.
Does the village have a sinking fund to which residents are required to contribute an amount as part of their periodic charges? If a village has a sinking fund, details will appear in the disclosure statement.
What are the charges?
In the main, charges will be made up of what is often referred to as the entry deposit (which is actually the full purchase price and includes the facilities fee) and a weekly charge to cover community facilities and charges and individual services provided to particular residents (such as hairdressing, cleaning, laundry or meals).
The facilities fee and is generally up to 30% of the entry deposit and is an amount which is aggregated back to the village over a period of time, usually between four and six years, and will be deducted from the entry deposit when repayment of the entry deposit is made on termination of the ORA. An administration fee, usually 2%, for conducting the sale of the unit may also be deducted on termination of the ORA and of course any monies owing for arrears of weekly fees and costs for additional services such as hairdressing, cleaning, laundry or meals.
By way of example:
- Entry deposit $400,000
- Less facilities fee after 5 years $120,000
- Administration fee $ 8,000
- Balance returned to you on termination (“termination payment”) $272,000
Under modern forms of ORA costs will also be deducted for refurbishment considered to be other than fair wear and tear. On termination of an ORA, an indicative termination payment needs to be obtained from the village operator, so that you or your lawyer can check what is being charged against what is allowed for in the ORA.
Intending purchasers and their next of kin need to clearly understand what they will receive on termination of a licence to occupy. The termination payment is usually not paid out until such time as a new licensee has been found for the unit.
The “sale” process
There are now strict rules governing the efforts of operators to secure a replacement licensee. Most ORAs provide that the weekly charge will continue until a new ORA has been entered into by a new resident. In most cases the weekly charge will be reduced by 50% should a replacement licensee not be found within six months of the termination date under your ORA.
On termination of an existing ORA the operator must promptly start the process of entering into a new ORA. The outgoing resident should be advised what marketing is to take place and should be informed on a monthly basis about the progress being made. Reports to the outgoing resident must be in writing after three months from the termination date.
If a new ORA has not been entered into within six months of the termination date a valuation must be obtained by the operator and if agreement cannot be reached as to value the resident can obtain a second valuation. The resident usually has an ability to introduce a potential new resident to the operator but in practice this does not often occur. The operator can also buy back the unit at any time.
The market for resale of village units and apartments can at times be quite limited especially where the village does not have staged care facilities including rest home and hospital facilities. Our experience is that some village units and apartments may take many months to sell. Intending village residents need to consider this aspect very carefully. Your ability to move out of a village may therefore be delayed for many months – and this may also impact on your beneficiaries in the event of your death.
Cooling off period
Under the Act a resident has 15 working days to cancel the ORA after the date the resident signs the ORA. For units to be built or completed the period is extended to six months from the proposed date of completion.
The 15 working day cooling off period effectively means that there can be no quick settlement under an ORA. Operators cannot access the settlement monies received from the incoming resident in order to pay out an out-going resident until the cooling off period has expired.
Accordingly operators will be reluctant to allow an incoming resident into occupation of the unit until the cooling off period has expired.A few village operators will also allow a resident to vacate the unit and have all the deposit payment returned to them without deduction within 3 months of the date of the ORA if the resident has a change of mind after moving into the unit. This option can be very beneficial where an intending resident still has some misgivings when the cooling off period expires. This option needs to be written into both the agreement to enter into the ORA and the ORA document itself.
How are complaints and disputes settled?
In the main, few complaints escalate to disputes and most complaints are dealt with satisfactorily between the operator and residents.There will be a procedure set up within the village for the hearing of disputes and those that cannot be resolved will go to a disputes panel under a process proscribed by the Act and its regulations. In some cases costs have been awarded against residents in circumstances where the disputes panel was of the view the complaint should have been resolved informally and/or where a resident has been clearly unreasonable in pursuing a dispute.
Transition between one licence and another
Where staged care is available in the particular village it is usually possible for a resident to go from independent living through to serviced apartment, and then when required, 24 hour care. Careful scrutiny of the ORA as to the process in this regard should be undertaken especially to ensure that a second facilities fee is not deducted in whole or in part when the ORA for a serviced apartment terminates following the earlier termination of an ORA for an independent living unit.
Other matters you should consider include:
- How far will I be from my family, friends, shops and community of interests?
- Is there adequate parking and storage?
- Will I be able to commute easily from my unit to the lounge and restaurant and other community facilities within the village?
- What is the gradient of the paths within the village – will I be able to manage these going forward?
- Should there be no 24 hour care available will my spouse or I be able to get to see whichever one of us is in care should such care have to be provided away from the village?
- Does the weekly charge increase from time to time?
- Is it tied to the Consumer Price Index? A few villages guarantee that the weekly charge will not increase during the term of your ORA.
What should I do at the beginning?
If a positive decision is made to go into a village you will normally be asked to sign an agreement to place a small deposit to show earnest. That agreement may be conditional upon you selling your home or other matters and may state that the vendor is to carry out certain works before you take occupation of the unit. You would be well advised at the outset to make the agreement conditional upon your lawyer’s approval.
You should receive a copy of the Code of Practice (dealing with practical aspects of running a retirement village) and Code of Resident’s Rights while an ORA and Disclosure Statement is usually sent to your lawyer for perusal and/or signing.
Before entering into the village you will be asked to lodge certified copies of enduring powers of attorney in respect of property and personal care and welfare and you may well be asked to sign an authority to allow the operator to have access to medical information held by your medical practitioner.
Last but by no means least!
A decision to purchase a unit in a retirement village is quite different from the purchase of a usual suburban home. The law recognises that to a lay person the transaction can be complex. It is a requirement of the law that a lawyer advise the intending resident in respect of the ORA and complete a certificate to the effect that the lawyer has explained the general effect of the ORA and its implications before it was signed and gave the explanation in a manner and in language that was appropriate to the age and understanding of the intended applicant.
At the time that the ORA is signed, it may be useful to also have a member of your family or a close friend with you.
For assistance and/or more information please contact Fortune Manning on (+64 9) 915 2401 or use the Contact Us form on our website.