With an ageing population, the volume and choice of retirement based accommodation is increasing around the country.

There has also been a lot of media attention around the fairness of retirement village contracts.

Some key aspects of a retirement village contract
There are a variety of different forms of contract used by retirement village operators, however, there are some common concepts which almost always apply.

  1. Ingoing Contribution – this is generally a large payment to the retirement village operator paid on moving into the village or shortly thereafter. This is sometimes described as a loan and is reimbursed (minus certain fees and costs) following a triggering event, such as vacating the premises.
  2. Departure Fee – this is arguably the most contentious fee charged by retirement village operators. This fee is how much of the ingoing contribution will be deducted prior to the contribution being reimbursed. The method of calculating the fee varies, however it can be in excess of 35% of the ingoing contribution.
  3. Capital gain/loss – another ‘cost’ to consider when entering into a retirement village contract is how a capital gain or loss is dealt with. The common scenario is a 50/50 split between the resident and the operator, however, this is not always the case.
  4. Recurrent charges – depending on the nature of the retirement village and the services provided, the recurrent charges which are paid to the operator on a periodic basis can be hundreds of dollars per month and this may not include all the statutory charges you are liable to pay (e.g. rates and water charges).
  5. Capital works and maintenance – it is important to understand what works undertaken in relation to the premises are to be paid for by you as the resident, through the capital works fund of the operator (which residents contribute to) and the operator personally.

What does a retirement village contract look like?
There are 3 main forms of retirement village contracts.

  1. Purchase Contract

Under a purchase contract, the resident will be purchasing the property. The property is generally a unit in a units plan. The unit is often sold to you by the previous owner, who would have been an eligible resident in the village.

As a condition of sale, the buyer will be required to enter into an agreement with the village operator outlining their rights and obligations relating to their occupation in the village. Despite being the legal owner of the unit, there are often restrictions on ownership and use, such as requiring a resident to vacate if they are no longer meet the village’s eligibility criteria. For example, if the resident’s health declines so that the village is unsuitable for them, they may be required to vacate their unit.

In order to secure the rights of the operator, the resident’s unit is charged in favour of the operator. The charge can be registered on the resident’s title (like a mortgage). The resident is also obliged to include particular special conditions in the contract when the resident sells the property to require a future buyer to comply with the same obligations that the resident did when they acquired the property.

  1. Sublease

Under a sublease, the resident leases the property from the village operator for an extended period of time (e.g. 50 years). The terms of the sublease set out most of the rights and obligations in relation to the property and the village generally, however, there can also be a side agreement with the operator which deals with additional rights and obligations.

Despite not acquiring legal ownership, a sublease can be registered on the title which will give a resident greater security over their rights in relation to the property and the agreement with the village operator.

  1. Licence Deed

A licence by the village operator to the resident giving them a right to occupy the property is a common arrangement. The licence will generally include all the terms regarding the operation of the village and the resident’s rights and obligations.

As a licence cannot be registered on the title and a licence does not create a caveatable interest, in order to protect the resident’s entitlement to be reimbursed the ingoing contribution (minus any costs and fees) at the end of the licence, a statutory charge should be registered on the title to the land.

What should you do?
Whether it is yourself or someone you know who is considering moving into a retirement village, it is important to consider what form of contract is being used as well as some of the key aspects of the agreement to make sure that you are comfortable with the arrangement.

If you have any doubt about what you have been given or told, please contact our Property Lawyers to discuss how we can help you to understand the legal and practical aspects of the arrangement. We can also introduce you to an appropriate financial advisor so that you are completely aware of your financial rights and obligations.

For more information contact the Commercial, Property and Finance Team:

Christine Murray | Partner
(02) 6279 4444