Relationship / Family
The growth of the retirement village industry is a defining feature of lifestyle for the senior group in the 21st century. Many elderly people view moving into a retirement village unit as a safe, secure and convenient way of life. However the financial and opportunity costs involved in entering into a retirement village need to be carefully considered.
A Licence to Occupy vs Freehold Title – The Nature of the Retirement Village Arrangement
A person enters into a retirement village unit on the basis of an occupation right agreement, or a licence to occupy. This licence does not grant ownership rights in the unit. It is like a long-term rental arrangement or a lease for life. A Trust or other entity cannot purchase an occupation right agreement, only the intending resident. The principal feature of these licences is the requirement to pay a capital sum to the village up front in exchange for the resident having exclusive use of a designated unit, apartment or villa as well as shared use of the common areas and facilities such as swimming pool, gardens and bowling greens.
Capital Cost v Camaraderie and Community
The capital sum is typically in the range of $500,000 to $750,000, although some are in excess of $1 million. In addition, the resident is required to pay a weekly facilities fee which may change from village to village to pay for community village costs etc. The licence terminates upon the death of the resident (or surviving resident) and in other limited circumstances. Upon termination, the resident’s estate will receive a partial refund of the capital sum. The village keeps between 20%–30% of capital payment. The weekly facilities fee is non-refundable.
A resident therefore invests in excess of half a million dollars and receives about 70% of this investment back on termination of the licence. This may occur five, ten or even twenty years after the resident enters into the arrangement. The capital sum does not grow over time, indeed the resident’s capital investment reduces in return for their right to occupy and enjoy the unit and facilities.
On the upside, retirement villages can offer a thriving community of support and camaraderie in one’s later years. The benefits of having other people around, at a similar stage of life, cannot be overstated, particularly for residents who are widowed. Safety and comfort for seniors are paramount considerations and are inherent in the make up of the typical retirement village.
Some villages provide the option of renting units within the village. Depending on the resident’s circumstances this may provide a more cost-effective option.
Is it for me?
Entering into a retirement village occupation licence is a lifestyle choice with significant cost involved. Our experience is that the majority of villages are well-run and offer a good level of security and convenience that is ideal for people who are retired and seeking a relaxed lifestyle. Removing the stress and complications associated with home ownership is attractive to many people.
We recommend that if you are thinking of entering a retirement village that you consider your life circumstances, goals and alternative living arrangements before signing up to a licence to occupy.
The legal documentation for occupation right agreements is relatively complex. The Retirement Villages Act 2003 requires that independent legal advice be obtained before entering into such agreements. A lawyer must witness the signatures of the intending resident and before signing, the lawyer must explain the general effects and implications of the agreement. The lawyer must also provide a certification to that effect.
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