Explaining the difference between retirement living options

The choice to move to a retirement village is primarily a choice for community rather than merely a financial investment.

If you are focused solely on the financial outcome, you are asking yourself the wrong question.

People do, and should, buy for lifestyle as a major consideration. It’s a choice for companionship, community involvement and security.

However, as with any significant transaction, remember the adage: “Let the buyer beware”.

People buying into a retirement village need to understand that the transaction is very different to buying and selling a house in the way they have been used to throughout their lives.

It involves ingoing, ongoing and outgoing costs and benefits that need to be understood.

Retirement villages provide different ways of creating rights to reside in their properties. In essence, you buy a right to reside for an indefinite period.

The four main retirement  living models:

1. Leasehold. This is the most common way that retirement villages offer their properties to incoming residents. The lease contract creates a right to reside for an extended period (usually 99 years – though, we are yet to see someone outlive their lease). A lease is registered in the Titles Office. There is no stamp duty. Sometimes there is capital gain, but not usually. General services fees apply. Normally there are exit fees.
2. Licence. Less common than leasehold (at least in Queensland), a licence creates a right to reside but is not registered against the title deed. However, there are additional protections provided under The Retirement Villages Act. Usually there is no capital gain. There is no stamp duty. General services fees apply. Normally there are exit fees.
3. Manufactured/relocatable homes/over-50s resorts. This model involves owning the house, but not the land. Because you own the home, there is usually a modest capital gain possible. There is no stamp duty. The owner pays a site rental to have a house on the land owned by the operator. There are no exit fees.
4. Freehold. This is the way that people are used to owning property. They buy the property (like buying a house) and can sell it at the end. They pay stamp duty. They get any capital gain (and bear any loss). The title is registered in the Titles Office. It is more like buying a unit in an apartment building and is subject to a body corporate structure. Body corporate fees, rates and water charges apply. Freehold is rare in the retirement village space.

Whatever the ownership model, all retirement living contracts provide extensive rules in relation to occupation of the home in which you live.

There are always ongoing fees while in the village. There are usually significant fees payable at the end of the ownership period – called various names including exit fees, or deferred management fees. Exit fee percentages vary across the industry and can be  based on the incoming payment, or the resale figure.

Other exit payments, such as renovation costs, reinstatement costs, costs of sale, legal costs and valuation fees vary from contract to contract, and operator to operator. Some allow for capital gain (and loss). Some do not.

Retirement living contracts are always long and complex (often running to 100-plus pages). Specialist advice (legal and financial) should be sought before entering into a contract for any type of retirement living arrangement.

 Sunshine Coast & Brisbane Elder Law are expert in all forms of retirement village contracts. Call 1800 961 622 or visit sunshinecoastelderlaw.com.au or brisbaneelderlaw.com.au