Many people who are nearing, or who have reached retirement, make a lifestyle choice to live in a retirement village. A retirement village offers a good balance between living independently and having access to support if necessary.
The Retirement Villages Act 2003 (the Act) was introduced particularly to protect the interests of residents and intending residents of retirement villages. Retirement villages need to be registered and, unless exempted, have a statutory supervisor to monitor the financial interests of the village. Intending residents are required to obtain independent legal advice before signing an occupation right agreement (ORA). This is because it is important that residents know exactly what they are signing up for when they shift into a village.
Common questions we receive from our clients around moving to a retirement village are:
How does this differ from usual home ownership? Buying into a retirement village is different from buying a house. Rather than buying the unit, you are buying the right to occupy it and use the facilities and services at the village.
How secure is my right to occupy? Some of our clients have been concerned about what might happen to their occupancy rights if the operator of the village runs into financial difficulty. All units in registered retirement villages have a memorial (note) on the title to the land where the village is situated. That memorial gives you security over any individual or company that may have lent the operator money. Practically speaking, if the operator cannot repay the loan the lender cannot evict you and sell the unit to recover their money.
What restrictions are there? All villages have age restrictions. You usually need to be 55 years or older (in some cases 75 years) to apply. The unit is for your personal use and occupation. You may have friends or relatives stay but not long term guests. You are only allowed to alter the structure of the unit with the operator's consent and usually only if you develop disabilities.
What are the financial implications? Entering into a retirement village should be seen as a lifestyle choice not an investment. You do not usually receive any capital gain and will generally not get back what you paid for the unit. This is because a “deferred management fee” (DMF) applies. This is a term to describe the amount deducted by the village when the unit is sold. The amount is generally a percentage of the purchase price multiplied by the number of years of occupancy. It is typically capped at between 20-30 percent. You will pay a weekly or monthly fee for outgoings which may be fixed for the life of the ORA or adjusted for inflation. In some villages the fee could continue until your unit is reoccupied.
What if the unit was damaged or destroyed? The Retirement Villages Code of Practice provides that the operator must insure the whole village including all units. If a unit is damaged or destroyed and cannot be rebuilt the ORA is terminated and the resident must receive an amount equal to the entry payment without any deduction.
What about if I change my mind? By the time our clients come to see us they have usually done their homework and made up their mind to shift to a retirement village. However, if there is a change in circumstances or simply a change of mind, there is a cooling-off period of 15 working days, after you sign the ORA, during which you can cancel it.
If you are considering shifting to a retirement village we suggest you begin to look at several retirement villages, talk to the sales staff and perhaps village residents, compare facilities, and discuss it with family and friends.
You should consider things that are important to you, such as:
How close is the village to family and friends?
What are the facilities and services available at the village?
Will the weekly fee increase?
Can you stay in the village if you need more care?
What type of legal interest do you acquire?
It is recommended that you consider a village that is a member of the Retirement Villages Association (RVA). According to its website, the RVA’s village membership accounts for more than 95% of all registered villages in NZ. There is an accreditation process which means the village is as good as they say they are and should comply with the Act governing retirement villages. If the village is not a member of the RVA, you may wish to consider looking elsewhere.
Finally, most villages require you to have enduring powers of attorney for both property and personal care and welfare to enable someone to manage your affairs if you cannot and to have a will. We can prepare these documents for you, act on your house sale and provide advice in plain English on the occupation right agreement.
If you would like assistance with your move to a retirement village, our friendly elder law team is here to help. Please contact Bryce Williams, in the first instance. +64 4 916 6436 or email firstname.lastname@example.org.