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Beginners guide to aged care – Part 2: Retirement Villages

In part 2 of our beginners guide to aged care, we explore the world of retirement villages, the different tenure options, and the various costs associated with retirement villages.

What is a retirement village?

A retirement village is essentially a housing development where older members of the community (generally over the age of 55 or 60) live in self-contained accommodation, share common facilities and have access to amenities and services.  The types of accommodation in retirement villages vary and range from freestanding homes to townhouses and apartments.

Residents of retirement villages must be capable of living independently, as opposed to residents of aged care facilities who require varying levels of care.  In fact, many retirement villages include within their agreements the right to terminate the resident’s right to live at the retirement village if they are no longer able to live independently.

You do not require an ACAT assessment to move into a retirement village.

Retirement villages can be privately owned or run by not-for-profit organisations.  They are not funded by the government but are regulated by the various state and territory governments.  In Queensland, retirement village are regulated by the Retirement Villages Act 1999 (Qld), which provides legal protections to residents entering into agreements with retirement villages and requires retirement villages to meet certain standards including timeframes in which they must provide prospective residents with documents to review and consider prior to entering into it.

Do I rent or buy?

There are three main types of occupancy and ownership arrangements in retirement villages:

Long term leasehold

Residents purchase a long-term lease (generally 99 years) with the village operator.  The lease is registered on the village’s title deed which gives residents a high level of security in terms of tenure. Long-term leases are the most common occupancy arrangement for retirement villages in Australia.

Licence

Residents enter into a long-term loan and licence agreement with the village operator which gives the resident a contractual licence to occupy their unit. This structure is a simpler and cheaper option but does not give the same level of security as a registered lease as the resident’s interest is not registered on the village’s title.  It tends to be used by not-for profit villages.

Freehold title

Residents purchase the building (and land on which it stands) on a strata title, and own it as if they had purchased a standard unit. Stamp duty is payable on the purchase.  This method of ownership is less common in Australia but provides the best level of security of tenure, because the land cannot be dealt with without the resident’s knowledge and agreement.

What costs are involved in a retirement village?

There are a range of costs involved in entering and living in a retirement village and the amounts vary depending on the location of the village, types of accommodation, and the facilities and services provided.

Entry payment

This is the up-front capital payment which secures your right to live in the village (whether it be a long-term lease, licence or a freehold purchase). It is also known as an ingoing contribution.

When you exit the village, part of this sum is refunded to you with a certain amount being retained by the village operator (more on that below).

Ongoing costs

These are fees paid to the village operator on a regularly (weekly or monthly) basis and include:

  • General services charge: ongoing charge to maintain the common facilities and services provided to residents, eg management, gardens, recreation facilities
  • Maintenance reserve fund contribution: used to replace, repair and maintain capital items owned by the village
  • Personal services charge: optional services you may use such as cleaning, meals and laundry
  • Body corporate fees: payable if you own your unit freehold

Exit fees

Exit fees are not regulated under the Retirement Villages Act 1999 (Qld) and can vary greatly between villages.  They can be complex arrangements as to how they are calculated which are generally set out in the Residence Contract (more on this below).

An exit fee is usually set as a percentage of the entry payment. The percentage is dependent on how long you have lived in the village for.

Other charges that residents are liable for upon exiting the village include:

  • Any outstanding general services charge and personal services charge
  • Your share of the selling expenses
  • Your costs of re-instating the unit, i.e. renovation works to get the unit back to a marketable condition
  • The village operator’s share of any capital gain (the increase in value between when a resident “bought in” and when they sold)

The cost of moving into a retirement village and all the various outlays and charges can be overwhelming and complex. When looking at your options for downsizing there are 2 different considerations at play: lifestyle and financial. Think about what your motivation is for moving into a retirement village as well as the financial implications of doing so.

When working through the financial implications of moving into a retirement village, it is worth going through the exercise of looking at what your expenses are for your current home, eg, council rates, body corporate fees, maintenance costs and compare this with the ongoing costs of the retirement village you are considering. Also consider what is included in the weekly fees, for example is power included?

If it is comparable with what you are paying for power before moving into the retirement village or what you expect it would be if you were to purchase a stand-alone unit instead of the retirement village. Compare the local rental market to see what you would pay outside a retirement village or the cost of moving into a manufactured home estates (see our next bulletin for more information on manufactured home estates).

Important documents and factors to consider before entering a retirement village

Retirement village operators are required to give prospective residents the following documents at least 21 days before the parties sign a residence contract:

  • Village comparison document
  • Prospective costs document
  • Residence contract
  • Village by-laws

Before you make any type of commitment to enter a retirement village and sign the residence contract, it is very important that you:

  • read these documents
  • are aware of and understand the costs involved (particularly the exit fees and how they are calculated)
  • have compared different villages
  • obtain professional financial and legal advice

For more information please contact our property team at Fox and Thomas.