Retirement Village Rules
09 Sep 2019
In the latest of our series about the important issue of downsizing, we look at the option of downsizing to a retirement village.
Moving into a retirement village can seem like an attractive option for people wanting to be apart of a community and having access to recreational facilities – such as swimming pools and gyms – on tap.
But before you sign on the dotted line, have a thorough read of the fine print and make sure you understand the various costs involved. Also, research how it might impact you from a financial point of view.
The entry cost associated with retirement living units can seem affordable compared to buying a house or apartment. However, this reflects the difference in tenure.
Most retirement village models give people a licence to occupy the unit, so the entry contribution acts as an interest-free loan from the resident to the village. The next most common tenure model is a leasehold model where residents are given a long-term lease over the dwelling. Very few allow residents to own the dwelling outright.
There will be ongoing fees as well. These may be called the weekly service charge, the recurrent charge, or the general service charge. Whatever the case, these are designed to cover the use of facilities and services in the village. If the tenure model involves outright ownership there will be the usual costs associated with a body corporate too.
It’s also important to look ahead to the exit fees. Under the licence to occupy tenure model, the deferred management fee is the biggest component. Typically, this is three per cent of the entry contribution per year of residence up to a cap of 12 years.
Check what happens when you exit the village. Do you have to reinstate or refurbish the unit? Will you be eligible for a share of any capital gain? Are you expected to contribute to marketing costs or sales commission? Will you have to continue to pay ongoing costs until a new resident is found?
Sometimes, people assume that if the retirement village has an aged care facility attached then they will be able to move from one to another. However, that’s not necessarily the case.
The terms used in a contract can make a big difference to what a resident receives when they leave. For instance, if the deferred management fee is based on the resale value instead of the entry contribution.
It is recommended you seek legal and financial advice before signing any contracts. Ideally, seek the help of a solicitor who has experience with retirement village contracts and the Retirement Village Code of Practice in your state or territory.
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