Ingoing, ongoing and outgoing – the cost of retirement

People do, and should, have lifestyle as a major consideration when buying into a retirement village. It’s a choice for companionship, community involvement, and security.

Covid caused many to re-think their lives, when they could see others enjoying the wellbeing effects of community living in a retirement village.

However, as with any significant transaction, remember “buyer be aware”.

When buying into a retirement village understand that the transaction is very different to buying and selling a house in the way that has become the standard throughout life.

Different retirement villages provide different ways of creating rights to reside in their property.

In essence, you buy a right to reside for an indefinite period.

There are four main ways that retirement villages offer residence to an incoming resident:

1. Leasehold

This is the most common way for retirement villages to offer their property to incoming residents.  The lease contract creates a right to reside for an extended period (usually 99 years, although 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 we are used to owning property.  We buy the property (like buying a house) and can sell it at the end.  We pay stamp duty, get any capital gain (and bear any loss) and 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. It is, however, rare in the retirement village space.

Whatever the ownership model, all retirement village 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) and some do not.

Retirement village contracts are always long and complex (often running to more than 100 pages).

Specialist advice should be sought before entering into a contract for any type of retirement village arrangement.

 Don Macpherson is an expert in all forms of retirement village contracts at Brisbane & Sunshine Coast Elder Law. Call 1800 328 952 or visit brisbaneelderlaw.com.au or Sunshine Coast Elder Law visit sunshinecoastelderlaw.com.au