Dorothy – 14/4/00
Are you or one of your family thinking of “buying” a unit in a commercial retirement village?
Before you decide to move into a unit in a retirement village read very carefully all the details in the financial arrangements and get advice from your lawyer.
Christchurch lawyer, Leo Steel, is concerned about the number of people who move into a retirement village without full information about their entitlement after their “purchase” of a unit. He has been talking to groups to increase community awareness of what is actually involved in going into a unit in the village. Here are the main points of a talk he gave.
How accurate is the picture portrayed in advertisements? The advertisements on television and in the newspapers show retirement villages as very attractive places in which to spend the years of retirement with a pleasant unit to live in, little reponsibility, entertainment areas on site, and the company of one’s peers (usually portrayed as being in good health and able to revel in an affluent lifestyle).
Maybe you want this type of life. Maybe your friends are already in an attractive village and you would like to join them. Maybe the family home is too large for you and the maintenance of house and garden has become a worry. Maybe you are looking for something easier to maintain and are concerned about the cost of the support you need to stay where you are.
Compare the cost of support in your own home with the cost of moving into a village. Before you decide that the support necessary to keep you in your home is too costly, work out very carefully what it is going to cost you to live in the retirement village and how the commitment you might enter into will affect your assets, your future and your family’s inheritance.
Residents usually believe that they are buying a unit, but what they receive is “the licence to occupy”. That right is not yours to sell if you wish or need to move to live elsewhere. The sum of money which residents pay for their units is not used to purchase a unit. It is actually a loan to the landlord in return for the licence to occupy. There is no interest paid to the lender. Instead the amount of the loan reduces with the depreciation of the sum lent, commonly at the rate of 4% per annum for five years. One village charges 10% per annum for ten years which means that after ten years there is no investment left.
Some villages state in their advertisements that the villas are purchased on an ownership unit title, but do not state whether this still involves a “licence to occupy”. It may be deceptive as it may actually be only a title for life and not mean ownership. The title will be cancelled at the resident’s death or earlier if the licence to occupy is terminated.
Weekly service fees In addition a service fee is charged to cover the maintenance of the building, rates, and any services such as lawn mowing, gardening, etc. This varies according to the level of service but ranges between $60 and $125 per week. It may be increased without consultation by the landlord.
What happens when a resident moves out? If you wish to move to another city because your family is leaving town, if you need to move to full resthome care, or simply wish to move out, or if you die, the owner is under no obligation to repay the money until someone else lends the required sum and moves into the unit.
Redecoration costs Before a new resident moves in, the unit may be completely redecorated and recarpeted. The cost of this is charged to the previous occupier, but there is no consultation about costs with that person or with the heirs to the estate.
Finding a new occupier Many owners are building additional units and the sales emphasis is on bringing in more loan money by getting these units occupied rather than finding new occupants for units which have been vacated. This has meant that some residents or their heirs have had to wait for many months before their loan is repaid. At the same time while they are waiting depreciation is reducing the amount that is due to be paid back, and the service fee is still being charged each week although the unit is empty.
Because the residents do not own the units, but merely have “a licence to occupy”, the residents or those who have inherited their assets have no right to play any part in the reoccupying process.
How secure is your tenure in the unit? The licence to occupy can be cancelled by the landlord under certain conditions such as serious illness. When the question arises of fitness to live in the unit the decision is made by a doctor chosen by the owner, not the resident’s own doctor, but the doctor’s bill is paid by the resident.
If the resident’s circumstances change, for instance by hospitalisation, another person, even a family member, is generally not permitted to occupy the unit for more than fourteen days.
What can you do if you are unwilling to accept these conditions as a village resident? Staying in your own home as long as possible, even though it means paying for support services, is a better financial option if you wish to maintain your asset to pay for resthome care when you need it and to hand on some of your savings to your family. A move direct to resthome care is the less expensive option.