When you buy a retirement village unit, it can be a minefield.
The following example looks at Bill and Mabel, who have sold their much loved family home and are buying a unit in Tweed Heads, New South Wales.
Bill and Mabel wish to downsize to ensure that they have a low maintenance unit with the option of extra care services as their health and care needs change.
They like Tweed Heads, as it is a pretty part of New South Wales and there are plenty of other retirees in this area and lots of great options in terms of retirement accommodation, not to mention plenty of clubs to play Bingo.
What is a Retirement Village?
A Retirement Village (Village) is a residential complex occupied by residents who are aged over 55 or who have retired from full-time employment.
In New South Wales, Villages are regulated by the Retirement Villages Act 1999 (NSW) (Act) and the Retirement Villages Regulation 2009 (Regulations).
The Act and Regulation:
- set out the rights and obligations of both Village Operators and prospective Residents like Bill and Mabel;
- set out disclosures and information that must be made available to residents and prospective residents;
- regulate the process of entering into a Village contract; and
- set out how a Village Contract can be terminated.
What documents will be required?
Bill and Mabel have seen a fantastic unit in a Village and can’t wait to move in. They have been lucky enough to get a great deal on the sale of their home and have the cash to move in straight away.
Bill and Mabel attend the office of the Village excited to be buying a unit, only to be given a number of documents the size of a yellow pages phone book, including:
- Disclosure Document;
- Retirement Village Contract;
- Loan Agreement; and
- Care and Support Services Agreement.
(collectively “the Lease Documents”)
Bill and Mabel are confused and don’t understand why there is so much paper work involved with the Lease Documents and what it all means.
Section 18(1) of the Act provides that a Village Operator (Operator) must give a prospective Village resident a general inquiry document within 14 days of becoming aware that that person is interested in becoming a prospective resident of the Village. A general inquiry document provides a basic explanation of the Village in the form prescribed by the Regulations.
Additionally, section 18(3) of the Act provides that the Operator must give a prospective resident a disclosure statement at least 14 days before a Village contract is signed.
Under the Act, the operator cannot enter into a Village contract with Bill and Mabel less than 14 days after the disclosure statement has been given to them.
The disclosure statement should include some of the following things and Bill and Mabel should take note of them to decide if the Village is the right place for them:
- details of the Village Operator;
- the size and location of the Village;
- The proximity of the Village to essential services such as hospitals and public transport;
- the types and levels of services offered by the Village (i.e. high level care or assisted living);
- details of the available units in the Village;
- a copy of the Village Rules; and
- details of fees and services.
Bill and Mabel must be careful to compare any disclosure they have been given against the Retirement Village Contract to ensure the information they have been given is consistent.
Retirement Village Contract
The Retirement Village contract sets out the terms of the proposed contract between Bill and Mabel and the Operator.
It tells Bill and Mabel details of the proposed ingoing contribution fee they must pay to enter the Village and a method for calculating the departure fee payable at the time Bill and Mabel’s contract with the Operator comes to an end.
Once Bill and Mabel enter into the Retirement Village Contract, they have a 7 business day cooling-off period (Section 32 of the Act).
The Act also provides Bill and Mabel with a 90-day settling in period during which they may terminate the Village Contract (Section 44A of the Act). If Bill and Mabel terminate the Retirement Village Contract and Lease during the settling in period, they will only be required to pay a fair market rent for the period of their occupancy and a reasonable administration fee to the Operator.
Bill and Mabel’s Village Contract also sets out other items such as:
- maintenance of items (who is responsible);
- the Village Rules;
- the requirement to make good on departure of the Premises; and
- rules for selling or assigning the Retirement Village Unit.
The retirement village Bill and Mabel are looking at is a leasehold interest with a 99 year lease.
Under a leasehold arrangement, the Operator owns the Village and each resident enters into a lease with the Operator. The Lease is then registered with LPI NSW to ensure that the resident’s interest is noted on the title to the property.
The terms of the Lease reiterate the key parts of Bill and Mabel’s Retirement Village Contract noting the following items are covered in Bill and Mabel’s lease:
- the Lease will continue for a period of 99 years, unless terminated earlier, from the date the ingoing contribution is paid by Bill and Mabel.
- the Lease contains a number of covenants (or agreements) that Bill and Mabel must agree to abide by whilst living in the Village including things such as their visitors, keeping a pet, Operator’s access to their Unit, maintenance of the Unit and complying with the Operator’s reasonable requests.
- recurrent charges that Bill and Mabel must pay to the Operator during the time they live in the Village noting these were also disclosed to Bill and Mabel in the Disclosure Statement and the Retirement Village Contract. Bill and Mabel are shocked to discover that these charges are payable in addition to Bill and Mabel’s ingoing contribution fee and remain payable until Bill and Mabel vacate the unit and/ or a new resident occupies their unit.
- personal services, noting these are also dealt with in the Care and Services Agreement.
- a list of fixtures, fittings and furnishings, which are in the Unit and which must remain in the Unit when Bill and Mabel vacate.
- default interest for any late payments under the Lease or Village Contract if Bill and Mabel do not make payments on time;
- details on how Bill and Mabel may terminate their lease and Village Contract or re-sell their unit and how the departure fee is calculated on such termination or sale.
The Loan Agreement
Bill and Mabel have also been asked to sign a loan agreement by the Operator.
This document provides that, during their 99 year lease, the ingoing contribution fee is treated as an interest-free loan from Bill and Mabel to the Operator.
The Operator will retain Bill and Mabel’s ingoing contribution fee until such time as the Retirement Village Contract and Lease are terminated. At the time of termination, the Departure Fee and any other expenses required to be paid are deducted from the ingoing contribution and the balance will be refunded to Bill and Mabel, the survivor of them or their respective Estates.
The Care and Support Services Agreement
Finally, Bill and Mabel have also been asked to sign a “Care and Support Services Agreement”.
This document regulates the care and personal services Bill and Mabel may require and/ or will receive while living in the Village.
Bill and Mabel need to undergo regular health assessments every 3 months while living in the facility to continue to assess their care needs and the level of assistance they will obtain from the Village (noting the more care they receive the more Bill and Mabel will need to pay).
Failure by Bill and Mabel to participate in these regular care assessments may result in them breaching their Village Contract and their Contract could be terminated by their Operator if they do not comply with the regular assessments.
How did LegalVision help Bill and Mabel?
Bill and Mabel were very pleased they had a LegalVision lawyer look over the Village Contract and other documents. They decided to proceed with their purchase of the unit (after asking a number of questions of the Operator) but went into their purchase with their eyes open and an understanding of the fees payable during their time in the Village and what will happen when they leave the Village.
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