Buying into a Retirement Village

Buying a property in a retirement village is vastly different to a normal property transaction.  Retirement village agreements usually carry with them financial implications in the form of exit fees that become payable when you exit the retirement village.  When buying a unit in a retirement village it is important to view your purchase as a lifestyle that you are buying into and not as a financial investment.

What type of legal interest are you purchasing?

Different retirement villages will provide their residents with alternate ways of holding their legal right to reside in the village. It is important that you understand how the village you are looking to buy into is structured. The most common options are as follows:

• Freehold/Strata Title – this is where you hold the title to your property in your own name. All common property will be owned by either a body corporate or an association owned by all the residents living in the retirement village. Generally, the retirement village operator will need to first approve you as a resident and will also require that you sign a management agreement.
• Lease– instead of holding the title of the property in your own name, you enter into an agreement to lease the property from the retirement village which is then registered on the title for the property.
• Loan and licence arrangements – similar to a lease, there is an agreement between you and the retirement village operator. However, unlike in a lease agreement, your interest in the property is not recorded on the title when a loan or licence arrangement is entered into.
• Company title – this is where you buy shares in a company which owns the retirement village, and where the shares give you a right to occupy a particular unit located in the retirement village.

The specific legal interest offered by the retirement village you are looking to buy into will have an impact on various factors - for example, whether or not stamp duty is payable, how much control you have to make changes to your unit/residence and how much responsibility you have for repairs and maintenance to your unit.

Common costs associated with leaving a retirement village

Depending on the terms of your agreement, the retirement village operator will be entitled to charge various fees when you exit the retirement village.  These often include the following:

• Exit fees
• Reinstatement fees
• Sale fees (including legal fees incurred on the sale of the residence by the village operator)
• A set share in the increased value of the unit
• The proceeds from the sale

An exit fee is an amount that you may be required to pay when you cease to remain living in the retirement village. This business model allows for retirement villages to offer their residents a higher standard of services compared to what they otherwise might have been able to afford, by deferring partial payment until the resident exits the retirement village (in the form of exit fees). The relevant method for calculating what exit fees will be payable will be provided to you in your disclosure documents. Often exit fees will be calculated based on your ingoing contribution, or alternatively the resale value. Generally the exit fee will increase (up to a capped amount) based on how long you live in the retirement village.

Other matters to consider

Before committing to buy into a retirement village you should take the time to consider the following factors:

• Do the facilities and services offered by the retirement village match your needs and desired lifestyle?
• Will you be entitled to retain any of the capital growth in respect of the value of the property?
• What are the various ongoing fees/contributions you will be required to make?
• What extra costs will you be liable for which are not included in your ongoing fees/contributions? For example, will you need to pay for home and contents insurance, utilities, telephone, internet, maintenance and repair costs?
• As a resident what are your rights, responsibilities and restrictions?
• Will you or your estate be required to refurbish the unit upon exiting the retirement village?
• When will your exit entitlement be repaid? If it takes a long time to sell your unit will the retirement village operator pay your exit entitlement early?

If you require advice or assistance regarding a proposed retirement village purchase, please do not hesitate to contact one of our commercial solicitors on (07) 4963 2000 or via the link below.