When you start your retirement village research you will regularly come across the term “Independent Living”.
But what does it actually mean?
Physically, the built-form of retirement village units are either a detached villa, a single-level townhouse that may form part of a duplex or triplex, or an apartment. These units are then described as independent living, low-care, high-care or assisted living, depending on the level of services offered by the village to that unit.
Many villages offer a combination of the above, which can also add to the confusion.
The theory is that you first move into an independent living unit, then progress to a unit offering care services as you require more medical assistance or help with day-to-day tasks. In reality however, this rarely occurs.
What typically happens is that a resident will move into an independent living unit and basically stay there until they pass away or require a significant level of medical support. The reason people stay in their independent living units for so long, even if they are not technically “independent”, is that they can – it is so easy to have care services delivered to your home by any number of suppliers that there is simply no need to move into a low-care or “serviced” apartment.
In most cases it is a better option to stay where you are in your independent living unit. This is because moving is stressful and it typically costs money to move. Furthermore, you will find that most apartments offering care services will try and fit you into a service package that consists of your all food, linen and laundry. There is typically no opportunity to adjust the number of meals or do your own laundry if you so desire.
So in summary:
- Don’t choose a village because of the availability of serviced apartments on the site, because you can have services brought to your door;
- If you do choose a village with serviced apartments, make sure the operator offers a seamless transfer process into the facility at your request, and
- Stay in your independent living unit as long as possible.
On the 4th of July 2014, A Current Affair ran a story about retirement villages. You can view the article here – http://aca.ninemsn.com.au/video/.
Normally ACA is an advocate for the retirement village industry so it was interesting to see such a one-sided view on the sensationally titled story Exit Fees sucking older Australians dry.
I have pulled a couple of points out of the story and would like to add my view as follows:
Time taken to sell
This issue was also covered recently by the ABC’s 7.30 Report (which you can see HERE), as well as my own blog sometime ago HERE. Essentially, the issue is that sometimes it can take a very long time to sell a retirement unit, which ties up cash and may continue to incur fees.
Retirement village units typically don’t sell because the price is too high. It is not usually the fault of the operator – they don’t make any money until the unit is sold and this makes them very motivated to transact. In addition, in some state’s legislation the operator will be paying some or all of the ongoing fees on that unit, which can quickly inspire them to drive a quick sale.
Yes, when you leave a retirement village and hand the unit back to the operator for selling, you will typically have to continue funding the ongoing fees.
Is this fair?
Well, just because you have moved out of your unit, it doesn’t mean that the village can now shut down the pool, sack the staff, stop maintaining the village and close down the kitchen. Clearly, costs will still be incurred in keeping the village open so your unit can be on-sold to the next resident. This is no different to say a strata-titled unit, where you still pay body corporate fees whether you are living in the unit or not. Someone has to keep paying those costs – you can’t slap additional charges onto remaining residents for vacant units.
As mentioned previously, in some contracts the operator actually incurs the fee liability after a period of time. If this issue is important to you, then look for contracts that include this.
I have previously covered Exit Fees extensively in my blog post HERE.
Exit fees are essentially the price you pay for living in a community with facilities (such as swimming pools, clubhouse, gym, etc) and support. Rather than sting retirees on a limited income for higher monthly costs as they are living in the village, the charges are accrued and paid when you leave the unit. A direct comparison would be a freehold strata unit complex with the same level of facilities – the monthly or quarterly cost would be much higher.
Are they fair?
Well, it depends. Exit fees that are at market average (30-35% of purchase price) and cover a range of village facilities are fair. Exit fees that are higher than market (35% plus of purchase price) are probably unfair. Even if the fee is above market average, if you are comfortable paying it, then that’s fine.
Exit fees are applicable to probably 95% of the retirement villages in Australia. If you don’t want to pay them, then best you look at alternative living options.
The Exit fee calculation should freeze once the unit is handed back to the scheme operator. You should not be paying exit fees for the period that the unit has been vacant.
The claim is made several times on the ACA story that parts of the industry are unregulated. Nothing could be further from the truth – all states and territories have retirement village legislation, or in the case of lifestyle parks, caravan park/mobile home legislation. The legislation was designed specifically for consumer protection and is usually administered by a state’s fair trading office. Ironically, the huge size and complexity of retirement village contracts is a consequence of this legislation.
Appoint your own agent
In some states, the legislation allows for the appointment of external real estate agents to sell the unit. I actually don’t recommend this, as external agents typically do not understand the contractual arrangements and difficulty explaining these to the buyer. Your best option is to be the “squeaky wheel” – get familiar with your state legislation and contract and know what the operator’s obligations are around the sale process. Keep them to it. Call constantly to find out what activity they have been doing to sell the unit. Check the website and sales collateral. Make sure they are using professional photos and not simply snaps from the agent’s iPhone. Ask for buyer feedback. Look at properties for sale in both your village and the village’s competitors to see how your property compares. Get a friend to act as a buyer to find out what they are saying about the property. drop in for regular inspections to make sure that the unit is being maintained and cleaned on a regular basis. Look at the sales brochures and website.
In other words, get active and drive the operator to sell. Don’t just sit back and expect it to happen.
Selling a dream
Retirement village operators are selling a dream and for many residents, they are very happy with their decision to move into the village. In fact, the 2013 McCrindle Baynes Villages Census Report which surveyed over 10,000 residents of villages across Australia found that the retirement village sector is Australia’s highest rated industry as voted by its clients! The reasons for moving into a retirement village as I outlined HERE remain valid reasons.
In summary, I cannot emphasise enough – do your research and get good advice. And remember, your only time to dictate the terms of your relationship with the village operator is BEFORE you sign the contract. Another tip is to keep your family informed as to the kind of contract you are signing. This will ensure there are no surprises in the event that they inherit your estate and have to work out the complexities of the contract you have signed.
As I outlined in my article HERE, one of the biggest traps with retirement villages is when you exit your unit, for whatever reason, and the village operator is unable to re-sell it. In this situation you are effectively trapped – you have terminated your right to occupy, yet you cannot access the capital you have tied up in your unit because the operator can’t sell it! For those of you who came in late, as I mentioned in this article HERE, you cannot receive the proceeds from the sale of your unit (known as your ‘exit entitlement’) until it has been on-sold to the next resident.
So what can you do?
Well, in the first instance, you need to pressure the village operator to get the unit refurbished and back onto the market as soon as possible. At the risk of stating the bleeding obvious, a unit can’t sell if it isn’t on the market. Some states legislate that this has to happen within a certain period of time, such as 90 days. A refurbishment only consists of repairs, gardening if required, new carpet and a paint. Sometimes the paperwork can be held up by the village operator’s staff or solicitors, for whatever reason.
Once a unit is on the market, if it isn’t selling then it is usually due to one reason, and one reason only – the price is too high. Operators are loath to drop prices and usually prefer to throw in special offers such as air conditioning, tiles instead of carpet, or funding the village fees for 12 months. This can be a huge barrier to a savvy buyer, who knows that the underlying price is too high. Operators believe (correctly) that if they drop the price on one unit, the next time they get a valuation on the village the valuer will apply that price to all similar units in the village, and thus decrease the overall valuation of the property. My frustration with this approach is that the DMF transaction model is built in such a way that prices can be dropped when the market is soft, because they can easily be increased again on the same property when the market turns around. But that is an article for another day…
The other downside to dropping the price is that many contracts oblige the outgoing resident to make up the difference of any loss to the owner between their original purchase price and the re-sale price. Readers of my book will know that I recommend purchasers negotiate to allow a price reduction of up to 10% without any penalty, which I think is reasonable, and allows the price to be decreased to expedite a sale.
So once your unit is actually on the market, what can you do?
The principle here is that of “the squeaky wheel gets the oil”. You need to be all over the sales agent and village operator – call weekly for updates on what marketing activity is occurring (after all, you’re paying for it!), how many enquiries they are receiving, how many inspections of the property have been conducted and how many offers have been received. Where is it being advertised? What do the advertisement photos look like – are they professionally done or has the sales agent taken them with an iPhone? Encourage the operator to take multiple contracts on your property – the last thing you want is to have your unit off the market for 60-90 days while the potential buyer tries to sell their house, only to have the contract fall over because they couldn’t execute a sale in time.
Drop in unannounced to look at the condition of the property – is it presentable? Are they maintaining it and keeping it clean? Is it open for inspection? Is there display furniture inside? Does it smell pleasant? Are leaves swept every day and are the gutters clean? Is the gardens presentable and are the lawns mown?
Review your pricing regularly and don’t hesitate to drop the price if needed. Do some comparison shopping of other villages nearby to get a feel for current market values.
Above all, be motivated and be involved. Don’t assume that the operator is doing everything they can to sell your property. Some of the large operators may have a couple of hundred properties for sale at any one time, so it is hard for you to get their attention unless you are making regular calls, keeping them to the legislated deadlines for paperwork and refurbishment, threatening legal action, and above all, simply being in regular contact.
Great article by Jimmy Thomson in the Sydney Morning Herald today on what to do about elderly residents who are a danger to themselves and neighbours.
Question: Our building was on fire again today. The elderly owner concerned has caused fires in the building many times in the past few years.
The owner, who needs nursing home care, thinks that because he owns the unit, nothing can be done to force him to leave. Do we have to wait until the whole building burns down before we take some action? Does the EC have a duty of care? Mrs Maker, via Forum
Click the link above to read on for the answer…
Let’s say for a moment that you are a single retiree living in a retirement village when, suddenly, across the smoky atmosphere of the mahjong table, you spot the new love of your life. A whirlwind romance follows (let’s face it, by this stage of your life you know what you like and what you don’t, so why muck around?) and the next thing you know, you have moved in together. No problems right? Wrong!
Generally speaking, retirement village contracts only allow for the signatories to the lease or licence to occupy the premises. This rule is in place to stop guests or family moving in for extended periods of time, particularly if they don’t meet the age requirements. So if you have fallen in love and want to live with your new partner, whether married or de facto, you will need to get permission from the village operator. This is not as onerous as it sounds, and permission cannot reasonably be withheld by the operator. Permission as such still does not make your new love a party to the contract however, and there is still a legal process to be observed before they can legally live in the village. The legal process requires the existing resident to execute a collateral deed to their occupancy contract, or in some instances even enter into a new lease or licence.
Before you go asking the village operator to start drafting legal agreements, it is worth taking the time to decide which of the following three outcomes you are seeking:
1. The most basic outcome is where you want your new love to occupy the residence with you. When you pass on, their right to occupy is extinguished and they must move out of the unit.
2. The second outcome is where you want your new love to enjoy the same occupancy rights that you do, so in the event of your passing first, they can stay on in the unit. Any proceeds form the re-sale of the unit when they exit however, are passed on to your estate and not theirs (like a tenants-in-common arrangement).
3. The final outcome is where you want your new love to enjoy the same rights of occupancy and ownership that you do. Under this scenario, if you pass away before they do, they can occupy the unit until they pass on or decide to leave. When they leave, they or their estate benefits from any exit entitlements (for all intents and purposes, a joint tenancy arrangement).
The first outcome listed above simply requires a collateral deed to be executed between the existing residents and the village operator. Understandably, the cost of this agreement belongs to the resident requesting the document and is usually around $800.
Depending on the operator of the village and the legal advice they receive, the second outcome may require a collateral deed or an entirely new agreement. The third outcome definitely needs a new lease or licence agreement to be executed with both residents and the village operator. The cost of this may be around $2,000. When your new agreement is executed, your previous terms and conditions should remain the same, and be backdated to your original occupancy date. For example, if you have lived in the village for five years and you then execute a new occupancy agreement to include your new love, your deferred management or exit fees accrued to date will be carried over to your new agreement. You should not be required to pay out your accrued fees to date and start again.
My advice is to start your relationship off with a collateral deed. If you are still together after a couple of years and you want your new love to participate in the proceeds of your estate, then request a new agreement. I know this is kind of like doubling up on the legal fees, however it is better to be safe than sorry!
What about you? Have you found love in a retirement village?
Entrants into Australian retirement communities have displayed a preference to remain in proximity to their family home and accessible to their family, friends, and trusted medical practitioners. Relocation interstate for instance, is more often the result of a desire to be near children and family who may themselves have moved interstate previously, rather than the desire for a ‘sea change’ or ‘tree change’ experience. A rough rule of thumb is that approximately 70% of a retirement community’s residents will have previously resided within 10-15km of the complex.
As a rule, retirees who currently own their own home and live near a retirement village (or in an area with a similar residential property price level) should have enough money to purchase a unit in that retirement complex.
Unfortunately the likelihood of remaining in your existing suburb is becoming harder as urban sprawl in our cities increases the cost of land and reduces the viability of new retirement living projects. It is now unlikely that you will find new developments close to major population centres and those that do get built are likely to be in the upper end of the cost range. Existing villages within population centres are usually older-style developments that were built in the 70’s or 80’s – it is a trade-off between being centrally located or living in a new development. In the future, it is likely that we will see more high-rise apartment-style retirement complexes in population centres, as this style of development is a more efficient use of limited land space and people are becoming more comfortable with apartment-style living.
Your Retirement Lifestyle
When deciding where to retire, you should take some time to consider the following:
- Climate, in both summer and winter
- Lifestyle, such as country living, the hinterland ranges or beachside
- Proximity to airports – retirees are renowned as frequent travellers!
- Proximity to family
- Local Clubs and Associations
- What activities and hobbies you plan to pursue in your leisure time, and what impacts the destination may have on these
For a useful explanation of lifestyle location considerations CLICK HERE
Other useful links about lifestyle:
A retirement village can be a great lifestyle option for retirees, but there are some hidden traps that you need to be aware of.
For example, when you leave a retirement village it may take many months or even years for the retirement village operator to sell your unit. This means that you are unable to access your exit entitlement, ie, the re-sale value of your home less any applicable fees and charges, which can be a real issue for people if they need that money to fund the purchase of a new home or a room in an aged care facility. In fact, I have heard of some aged care facilities that will not take former residents of retirement villages for this very reason!
When you are looking at moving into a retirement village the last thing on your mind is going to be what happens when you want to leave, however I would encourage you to give serious thought to the worst case scenario – what will you do if they can’t sell your unit?
Most purchase contracts oblige the resident to use the on-site sales agents to sell their unit, and in practice, they really are the best option for you anyway. Local real estate agents won’t understand the purchase contracts, let alone try to explain them to potential buyers. However the on-site agents are not necessarily that competent, and it certainly pays for you or your family to follow up regularly with the agent to maintain momentum. Check all the basics – are they using flattering photography of your unit? Is it displayed prominently in their window? Are they advertising it in appropriate publications? Get a friend or family member to make an enquiry to see what the sales staff are saying about your unit. Make sure it is well-presented – are the windows opened every day to air it out? re the paths swept? Is it clean inside? Has the refurbishment been done to an acceptable standard?
The best option is to find a contract where the village operator will buy back you unit if it hasn’t sold within an agreed timeframe. However these contracts are rare and like most things in life, you pay for what you get!
As always, get advice on your retirement home purchase because they are complex and unusual transactions.
But is it really?
Most retirement village units in Australia are sold under the Loan/Lease or Loan/Licence occupancy model, where the actual title remains with the retirement village operator and a resident occupies the unit under a lease or licence. The resident pays a deferred fee when they exit and may or may not have access to the capital gains (if any). Under a freehold model, the resident owns the freehold title to their unit, NOT the village operator. But as I will argue, this does not necessarily work in the best interests of the resident.
When you buy a freehold unit you have to pay stamp duty, whereas you don’t pay stamp duty on Loan/Lease or Loan/Licence contracts.
Typically under a Loan/Lease or Loan/Licence contract the village operator is responsible for any maintenance or repairs on your unit (this does vary depending on the contract), whereas under a Freehold unit you are responsible for the internal fittings and fixtures and the body corporate (you and the other residents) are responsible for the roof, walls, grounds, common areas, etc. The practical ramifications of this is that over time, residents (the body corporate) vote to keep the monthly levies low and as such, do not have the fund available to properly maintain the village.
When you leave the village under any kind of contract there is typically an obligation for the outgoing resident to refurbish their unit back to a marketable condition. In Freehold villages the resident pays for all of the refurbishment work. Under Loan/Lease or Loan/Licence contracts the operator may pay for all or a portion of the work. The practical ramifications of this is that exiting residents or their estates will rarely pay for a refurbishment. This means that over time the units become more and more dilapidated.
A scheme operator in most cases will always spend more on the upkeep and refurbishment of a village than a group of residents, simply because they are more heavily invested in the village and have more funds available to spend.
When looking for your retirement home I would encourage you not to be obsessed with the form of the title, but rather with the location of the village (as appropriate for you needs) and the key terms and conditions of your contract. As always, make sure you get good advice as this is a very specialist area.
What IS a “retirement village”?
You will have heard many terms used to describe a retirement village, such as an “Over 50’s Village”, a “Lifestyle” or “Independent Living Resort”, or even a “Retirement Community”. These terms have been introduced by marketers trying to escape from the traditional image or stigma of a retirement village – you know, that of an old, depressing, suburban complex with boring brick-and-tile buildings, inhabited by the grey cardigan and cup-of-tea brigade, and we’ll discuss more about that later.
So what actually is a “Retirement Village”?
Well legally, a retirement village is whatever is defined as a retirement village under the retirement village legislation in each state and territory. That’s right! In another clear demonstration of the inefficiency of our state and federal system of government, every state and territory has passed its own retirement village legislation. Unsurprisingly, the legislation across the nation is pretty much the same, with only minor differences between the states.
Typically, a retirement village in every state is generally described under legislation as “premises where older members of the community or retired persons reside, or are to reside, in independent living units or serviced units, under a retirement village scheme.”
A “Retirement Village Scheme” as mentioned here is also defined under the legislation, typically as “a scheme under which a person enters into a residence contract, and in consideration for paying an ingoing contribution, acquires a right to reside in a retirement village, and on payment of the relevant charge, acquires a right to receive one or more services.”
This probably sounds a bit confusing and legalistic at the moment, but stay with me – it will become clear later on as to why they have structured the legal definition of a retirement village in this way.
Along with the rapid growth over recent years in the retirement village industry has been a range of concerns about the way the sector operates and in particular how the interests and vulnerabilities of residents are best protected. In response to these concerns the state governments of Australia have passed various pieces of legislation to administer the sector.
The intention of the legislation across the states is to provide consumer protection. Interestingly, this means that responsibility for retirement village legislation rests not with ministers for housing or seniors interests – it rests with ministers for consumer protection. Consequently, the Departments of Fair Trading or Consumer Affairs offices in each state or territory administer this legislation. The consumer protection focus of the legislation means that the power of a village manager to control its relationship with residents is greatest at the time of drafting the underlying contracts, so this is the best time for purchaser to “get it right”.
We learned previously that the retirement village legislation in each state typically defines a Retirement Village as a “scheme”. A scheme is allows the village owner to structure a resident’s occupation whereby they:
– Enter into a residence contract of some sort;
– They pay a fee to acquire the residence contract; and
– They can pay for additional services if required.
A “scheme” is something that is established predominantly for retirement villages, under which:
– Residential units are occupied under a lease or license; or
– The right to occupation is conferred by ownership of shares; or
– Residential units are purchased from the administering authority, subject to a right or option of repurchase; or finally,
– Residential units are purchased on conditions restricting their subsequent disposal.
In some cases the legislation applies differently to different legal structures and contractual arrangements. Particular legal structures and contracts may also be administered by other legislation, such as strata or community title, the Corporations Act, manufactured homes or residential tenancy legislation.
The retirement villages legisation across all jurisdictions seeks to achieve the following broad principles:
– Clarify the rights and obligations of residents and operators of retirement villages;
– Facilitate the disclosure of all important information relevant to a person who is considering entering into a particular retirement village;
– Require contracts to contain full details of the rights and obligations of the parties
– Facilitate resident input where desired by residents into the management of retirement villages; and
– Establish appropriate mechanisms for the resolution of any disputes between residents and operators.
If you want to find out more about the retirement villages legislation in your state, most of the administering offices such as the Department of Fair Trading or Office of Consumer Affairs publish easy-to-read fact sheets that outline the key points of the legislation. You can also find them here on our website under state-specific information.
A retirement village that wants to operate within the confines of a state’s retirement village legislation must seek registration to ensure formal recognition of its status as a retirement village. Formal government recognition makes a village a “registered retirement village”.
As a registered retirement village, the village owner can get away with provisions that normally would not be permitted, such as granting a licence to occupy a premises instead of freehold title, charging ingoing or deferred management fees, a no pets policy, and restricting the age of potential residents.
Now a Registered Retirement Village should not be confused with an Accredited Retirement Village.
The Australian Retirement Village Accreditation Scheme is a national accreditation system that seeks to set the benchmark standards for retirement villages to meet as a minimum. The Scheme is administered by the Retirement Village Association, a non-government entity.
The Accreditation Scheme sets out a national standards framework and assesses whether villages meet the requirements set. The aim of the Accreditation Scheme is to provide existing and prospective residents and the wider community with greater confidence that a village is well managed, promotes resident involvement, provides quality services and a safe environment. The Scheme provides all stakeholders with a set of “best practice” standards. Assessments are conducted independently of the village and the scheme is administered by the RVA.
The Retirement Village Association or RVA, is Australia’s peak body for the retirement village industry, with a membership base of over 600 village and associate members nationally. The RVA seeks to enhance the ongoing growth and sustainability of the retirement village industry. Membership consists of retirement village operators, managers, owners, developers, investors and industry specialists across Australia.
To be clear, the RVA is not a government body and it does not represent the interests of village residents. However accreditation can provide a prospective resident with a level of comfort that an accredited village is likely to be well-managed.
As a general rule however, an ASX-listed retirement village operator with many village sites would be fairly safe bet whether they are accredited or not. We would recommend that if your client is looking at a village operated by a smaller, unlisted owner/operator with only a few villages, then make sure they do have RVA accreditation.
Retirement villages are communities of independent living units targeted to retirees who are still able to live independently. That is, without the need for any external support. Retirement villages will typically have a MINIMUM age limit on potential residents, but not a maximum age limit. In theory, this means that someone of the age of, say, 95 could live in a retirement village.
But what really happens in practice?
Retirement village operators don’t want a community full of old people who need nursing – this is what aged care facilities are designed for. Retirement villages are aimed at younger retirees, with most residents moving in around their early 70’s. The average age of retirement village residents is late 70’s. Too many old people will put off this younger crowd!
Therefore older, less mobile retirees may be rejected by the retirement village. This may seem somewhat incongruous, given that the retirement village business model needs people to actually move out in order to receive any income, and older residents are much more likely to move out before younger residents. However, the reality is that retirement village residents needing care typically stay put in their residence and bring in the required services from outside of the village. They do this because care funding in Australia is designed to keep people in their homes for longer. It is also because many residents can’t afford an aged care facility after they sell their retirement village unit and all of the operators fees and charges have been taken from the sale proceeds. You can read more about this conundrum HERE.
Many people seem to think that it is part of the service for a retirement village operator to find or provide support for residents needing care, however this is NOT the case! Retirement village operators would prefer to see older people needing care leave the village and move into an proper aged care facility. It is the responsibility of the resident and their family to arrange support. Having said that, it is a bit of a gray area because the retirement village operator has a duty of care to residents. Most operators simply find it easier to avoid the situation by rejecting older residents likely to need care services immediately or in the short term.
I would suggest that if you need care now, or are likely to need care in the short term, then an independent living retirement village is probably not the right place for you. Instead, check out facilities offering “supported living“, where you can live independently but have the option to bring in care as you need it.