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Issue 11 · February 2011 |
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MacGillivrays |
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The Ins and Outs of Retirement Village Schemes |
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Tired of mowing your lawn, maintaining your property? Need to downsize or want to live in a community with more security? You might be considering moving into a Retirement Village but are not sure if it’s for you? Uncertain about the complexities of purchasing a unit and the costs incurred on sale of your unit?
Here we set out some brief information on the “Ins” and “Outs” of Retirement Villages as registered under the Retirement Villages Act 1999 (Qld). What is a Retirement Village?
Generally when we refer to a Retirement Village, we are looking at a type of accommodation complex that is owned by a scheme operator and offers various styles of accommodation for persons that meet the minimum age requirement (generally anywhere between 50 to 65 years depending on the village). The types of accommodation generally offered are independent accommodation via stand alone villas, as well as serviced apartments and also may include single rooms for persons with higher care needs, but who do not yet need full nursing care. The village has on site management and offers various services and facilities for use by the village residents.
A Retirement Village scheme requires the scheme operator to be registered under the Retirement Villages Act 1999 (Qld) and the operations of that village and the protection of residents is then provided for under that Act.
If you are genuinely considering a particular unit in a village, then the scheme operator must provide you with the Public Information Document (“PID”) for the village. This rather large booklet sets out information on the village, the daily costs, the by-laws for the village, the terms of your residence agreement which includes most importantly the calculation of the scheme operators exit fees and your exit entitlement on resale of your unit. This PID forms part of your residence contract.
So what are the points to be aware of when considering a Retirement Village lifestyle?
Ownership – “Going In”
Most of us are familiar with the concept of being the Registered owner of a property. If you buy a home, you are registered on the Certificate of Title for that property as the owner. Subject to debt owed to the bank, it is fairly much yours to do with as you wish. You can renovate, rent, mortgage, sell or ultimately pass it on through your estate on death.
Whilst there are still some Retirement Village schemes which allow the resident to purchase their unit and be registered on the title as the freehold owner, these are few and far between. The most common schemes are either a leasehold arrangement which allows the resident to have their lease for the property registered on the Certificate of Title for the whole of the land comprising the village or a licence scheme.
With the latter, the resident is not registered on the title in any way. However where the scheme operator intends to run a licence arrangement, upon registration of the village scheme, a statutory charge is registered over the land on the Certificate of Title and has the effect of protecting the resident’s rights to occupy their unit, use of the facilities offered by the village and their right to be paid an exit entitlement when leaving the village in priority to other securities registered over the land.
Thus a resident in most cases is not “buying” a Retirement Village home, with all the accompanying rights of ownership, but rather is “acquiring a right to reside” in the village for an agreed price on certain terms and conditions in exchange for accommodation, provision of services and use of the facilities provided by the scheme operator. In effect, you are buying a lifestyle.
Costs
There are various costs involved in acquiring the right to reside in a retirement village. Firstly there is the purchase price of the unit, referred to as an ingoing contribution. Unless this is a new unit, the price is set by the scheme operator in conjunction with the outgoing resident and should reflect the current market value for units of that type. To compare units in different villages, a starting point is to take the purchase price and divide by the unit area to get a price per square metre. Then you need to take into account factors such as quality of the unit, location and facilities offered.
Entering into an Agreement
If you decide on a village and unit, in addition to provision of the PID, you will usually be asked to pay a deposit, which is then deducted from the ingoing contributions and to sign an expression of interest, if you proceed. You may also be asked to sign the agreement to acquire a right to reside.
It is preferable to get legal advice before signing up, to ensure your rights are protected, particularly if you need to sell your current home to finance the ingoing contribution and that you fully understand your rights and obligations of residing in the village and the costs of exiting the village. Once you sign this agreement you have entered into a contract and whilst there is a 14 day cooling off period, it is more difficult to negotiate any alterations to the terms of the agreement.
Once you move into your unit you will pay a general service fee which covers maintenance of the village facilities such as gardens, village bus, onsite management, security and insurance. The scheme operator does not generally profit from this. They make their profit when you leave the village, by charging a deferred management fee (exit fee) based on the number of years of your residency and generally take a share of the capital gain on resale of your unit.
By Laws and Terms of Your Agreement
There are usually extensive rules of the village. Most are commonsense and relate to the right to enjoyment of the village lifestyle by all residents. However, there are usually some more restrictive rules such as notifying the manager of the village if you wish to have anyone stay in your unit, or if you are to be absent from your unit overnight.
You can also be required to terminate your residence if you deliberately or recklessly injure another resident or damage village property. Another ground of termination of your agreement is your ability to live independently. If the scheme operator believes that your unit is no longer suitable for you, (i.e. you may not be able to live independently and require nursing care) they can make arrangements to have you assessed and depending on the outcome of that assessment, require you to terminate your residence.
Selling Your Unit and Your Exit Entitlement – “Getting Out”
It is important to realise at the outset that you are generally unlikely to recoup the amount of your ingoing contribution. Usually when you need to exit your unit the scheme operator will obtain a purchaser for your unit and with input from yourself (or your executor) will negotiate the sale price. Whilst the terms of the agreements offered by the various scheme operators differ, a number of costs and fees will be deducted from the amount paid by the incoming resident for your unit, (the exit fee) with the balance being your exit entitlement. In general the following costs and fees will be applicable.
Share of Capital Gain
Some contracts provide for the scheme operator to share in a percentage of the capital gain with you. Some will provide that if there is a capital loss, you will bear the whole of the capital loss. Others will have a lower ingoing contribution and will not give you any share of the capital gain.
Termination Fee
This usually equates to a percentage per year of the amount of your ingoing contribution, or in some cases, the new residents ingoing contribution, increasing each year up to 10 years, at which it is capped.
Renovation Costs
Depending on whether or not the scheme operator is to share in the capital gain, all or a percentage of the renovation costs of your unit will be deducted. Typically the work done is painting, new carpets and repair of any broken fittings.
Service Charges
Once you vacate the unit you continue to be responsible for the service charges for up to three months or until such time as your unit is sold, whichever is the earlier. After that, if the scheme operator is to share in the capital gain, the service charges are apportioned in the same manner.
Sales and Legal Costs
The sales costs are also the outgoing residents responsibility. Some scheme operators will charge for their legal costs, both on entry and exit.
Each agreement is different so it is important to do your homework and to get some early legal advice on your particular agreement and what terms might be open to negotiation with the scheme operator prior to signing up your agreement.
If you are considering buying into a particular village we are happy to advise on the terms of your particular contract, terms that may be negotiable and assist with settlement of your contract.
Contact: Sandra Bassett ph:(07) 3228 5353, sandrab@macgillivrays.com.au
By Sandra Bassett, Associate Corporate & Business Services
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Buying or selling a business? Contact MacGillivrays Corporate & Business Services for advice 1300 369 581 or johnm@macgillivrays.com.au.
PLEASE NOTE: This article is not legal advice and our comments are of a general nature only. This document is not to be relied on as substitution for proper detailed legal advice. Liability limited by a scheme approved under professional standards legislation. MacGillivrays are an Australian law firm
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