Retirement Village Contracts – Beware!

At some point in your life you may consider the prospect of taking up residency in a retirement village.  Whilst some retirement villages adopt an adapted owners corporation as their structure, most retirement villages tend to use more complicated licence agreements in order to give residents rights over a particular apartment, unit or villa, and whilst the “owners corporation” model would see the resident purchase a title over a particular apartment or unit, the licence agreement model does not give the new resident the security of a title.

In both cases the resident will also enter a services agreement in respect of the various services offered at the retirement village.

Through the licence model, the retirement village will offer use of an apartment or unit via a licence agreement.  In order to take up a licence agreement, the resident will be required to pay a deposit and enter into a loan arrangement with the retirement village operator.  On top of this, the resident would be required to pay the service fee in order to obtain all the services that the retirement village might offer.

The crunch will come when some years down the track, you wish to leave the retirement village (and perhaps enter a nursing home) and sell or transfer your licence to an incoming resident.  At that time, your loan amount is repaid less outstanding service fees and other deductions from the loan.  These are usually substantial and may include the cost of a full renovation of the apartment or unit.  The longer to you spend in the retirement village the less or your initial loan amount you are likely to receive on exit.  Contrast this to a title where similar deductions apply but at least the property has a fair chance of increasing in value.

Most retirement villages offer services which are aimed at people of retirement age eg. you may have access to a pool or bowls green or in some circumstances even a golf course.  Usually a retirement village offers a certain amount of independence and outgoings like telephone, electricity, water use can be separately connected and billed to the apartment or unit in question.  There may also be easy access to cleaners, nurses and medical, dental and physiotherapy type services.

You are usually restricted from making structural alterations to the apartment or unit without prior consent of the operator.

Annual meetings of residents usually determine a set of model rules on how the facility should be run.  Interestingly enough, residents need to be aware of situations where the operator owns a large portion of the shares or interest in the village and can use their influence determine changes to the rules at the annual meeting.  This could include increasing service fees…

Anyone going into a retirement village (or nursing home) should seek legal advice before entering into these types of contracts.  By their nature these contracts are long, complex, cumbersome documents full of legalese, which to the uninitiated is completely unintelligible, especially when things like long term loans are thrown into the picture.

If you find yourself in this situation, give us a call, we are only too happy to help out.

Retirement villages

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