Retirement Villages have recently received a lot of recent negative media attention following a recent joint investigation by Four Corners and Fairfax, who have criticised some agreements as heavily favouring the villages, encouraging a “churn” of residents, and incorporating massive exit fees. This is not to say that Retirement Villages should be avoided, or that they are all bad. However, like any other large financial transaction, it is very important that you read and understand the agreement very carefully, and seek the advice of a qualified legal professional before committing to anything.
What are you buying?
It is important to understand exactly what you are buying, as this will have a significant effect on what happens when you vacate your unit. Depending on the Village, you may actually be buying the unit you reside in, otherwise you may simply be buying a long term lease or licence to occupy.
How much is this really costing me (or my children?)
The Retirement Village industry is unique, in that it makes a very large proportion of its profit not by providing you with a service or selling you a unit, but through fees charged when you leave. These fees (called exit fees or departure fees) are a large, one-time fee paid in addition to other costs you might pay while living in the Village. They may be deducted from a substantial Accommodation Bond you paid upon entering the village, which are often financed by selling your primary home. This bond (less any fees) is generally repaid either to you (or, if you have died, your Estate) when moving out of the Village.
These fees are determined both by the contents of the Residency Agreement, and the Retirement Villages Legislation in your state or territory. Generally, an exit fee is calculated as a fixed percentage of your initial contribution per year that you reside in the Village. Depending on this amount and the length of your stay, an Exit Fee can potentially enter into the hundreds of thousands of dollars.
This fee is payable if you move out of the Village, or if you die, but is probably not the only fee you (or your Estate) needs to pay. Each provider has its own Agreement, and may put in place different fee arrangements. These can include:
- Monthly service charges to maintain the Village facilities
- Maintenance fees
- Refurbishment and cleaning fees (upon vacating the unit)
- Marketing fees (to find a new resident for your unit after you have vacated or died)
- The Village Operator’s legal costs of preparing your Residency Agreement
When will my bond be repaid?
Your Accommodation Bond is often not refundable until a new resident is found to take your unit. In the meantime, any other fees may continue to be charged and may be deducted from your Accommodation Bond when the unit is eventually sold. If you have lived in the Unit for a very long time, and the unit is also on the market for a very long time, the majority of your Bond could be consumed in fees.
What about the Capital Gain on the unit?
If your unit is eventually resold at a higher price than when you bought it, it is very important to pay attention to who can claim the Capital Gain on the unit. It may not necessarily all go to you (or your Estate).
What will my lawyer do?
elringtons have expertise in reviewing and advising on Retirement Village Agreements. Having operated in the ACT and NSW region for more than a century, we are familiar with most of the standard agreements offered by the local retirement villages in the region and are able to provide comprehensive advice on their operation, as well as guide the matter to settlement on your behalf.
We encourage clients to take a holistic approach to their affairs when preparing to transition into a retirement village. We offer services in a broad range of legal areas, and are also able to assist you in the sale of your current residence, as well as review your Will, Power of Attorney, and Guardianship documents.
Appointing an Enduring Guardian and Enduring Power of Attorney
When should I change my will?
What happens if I exclude someone from my will?
For more information or if you wish to make an appointment to discuss your queries, please contact our Property and Commercial team:
p: 6206 1300| e: info@elringtons.com.au
