The number of retirement villages is increasing in Australia as our population ages, and our firm acts in scores of purchases and sales each year. In NSW, the complex legislation that governs the residents and operators of NSW retirement villages includes provisions on contracts, financial management, disclosure of information, operator’s obligations, requirements for village contracts, rules regarding the variation of services, the management of village assets and much more.
There are many different types of retirement village agreements and these are some of the key considerations when buying into a village.
Are you a registered or non-registered interest holder?
The type of agreement will determine the type of interest you will hold over the property, with document titles such as a Contract, a Lease or a Licence. For example, if you are purchasing the property as a non-registered interest holder, you will not own the property but will have the right to live there on the terms of the agreement with the village.
Recurrent charges for general services
Most agreements will contain charges payable in instalments (weekly, fortnightly, monthly or quarterly) in addition to the purchase price. These charges are used to meet expenditure relating to the village. They may be varied by the operator (it will be in your agreement) but there are limits on the variations in relation to timeframes, notice periods and CPI increases.
Capital gain / capital loss structure
The agreement will set out the terms relating to a loss or gain in value on termination of the agreement. For example, some village agreements will provide for residents to retain 100% of the capital gain, whilst other agreements provide a reduced amount or no allowance. This is an important consideration for your financial and estate planning.
Stamp duty
Stamp duty is not always payable on retirement village agreements, but this will depend on the type of the agreement you are entering into. For example, if you enter a leasehold or loan/licence agreement, which is common, you typically will not be required to pay stamp duty because you aren’t purchasing legal ownership. However, if you are purchasing a property with freehold title, then stamp duty will be payable.
Departure fee
A retirement village departure fee, also called an exit fee or deferred management fee (DMF), is a charge paid when you leave the village. This fee is typically a percentage of the property’s sale price or original entry price, calculated over the length of residency. It’s often calculated at a rate of around 5% – 10% per year of residency, with a cap on the total fee if you stay for a longer period. The exact formula and cap will be detailed in your agreement.
Reinstatement Work
A lot of agreements require the property to be returned to nearly the same condition as at the date of occupation, excepting fair wear and tear. This may require you to rectify any damage to your property and may further require removal of any alterations or additions you have made, at your own cost.
There are also many other considerations to take into account when entering into a village contract, such as the rules surrounding visitors and how long they can stay, medical requirements, pets, who may sell your property and much more. It is important that you have your retirement village agreement reviewed and explained to you by a solicitor experienced in this area of law. You should also consider financial advice before entering into it.
