Retirement villages offer accommodation for people aged 55 years and above. Built up in communities, these villages are usually owned or operated by a provider organisation and require residents to enter into an occupancy contract. They differ from government-funded aged care hostels, nursing homes and respite care facilities.
Villages in each State are subject to different legislation and operating practice requirements and it is important you are comparing apples with apples. In the ACT, there are four main types of ownership available as outlined below.
Loan licence agreements
More common throughout villages in the ACT (as opposed to other States in Australia), a loan licence contract involves payment of an upfront loan amount or ingoing contribution to the provider for the right to occupy a nominated village residence.
Residents do not own their unit but are granted a contractual licence to live there. Usually the term is for a resident’s lifetime, with provisions available for an earlier exit, often with departure fees applying when the licence ends (whether early by the resident choosing to vacate, or from their estate).
In addition, ongoing contributions are fees paid throughout the term of occupancy for extra services which must be outlined in the agreement (referred to as general recurrent charges or personal service charges).
It is important to be aware of these ongoing costs beyond the initial ingoing contribution amount, and to understand the residence does not act like an asset in an outright property purchase, as often there is minimal return on the investment (i.e. capital gain). When a licence ends, any refund of the ingoing contribution is generally reduced by a “departure fee”. This may be calculated as an annual percentage for the number of years in residence, or based on the value of the unit on exit or perhaps the initial ingoing contribution. Any capital gain in the property value may or may not be shared with the resident and an uncapped departure fee can represent a significant cost to you or your estate when you leave.
Residential tenancy agreements
More commonly seen in other States, including neighbouring New South Wales, this style of agreement is very similar to a standard landlord-tenant arrangement, providing a contractual right to occupy the residence. The agreement is bound by provisions in the Residential Tenancies Act 1997 and your rights and obligations must be set out in the terms of the contract.
Unlike a loan-licence agreement, a residential tenancy agreement does not usually require an ingoing contribution or incur substantial exit fees. Some may require a bond or deposit payment upfront and certain services will attract additional fees but these are outlined in the contract and many services are often included in the terms of the agreement.
Both residential tenancy agreements and loan-licence agreements may allow for a “sub-lease” style arrangement and attract similar terms depending on the primary agreement. However, a sublease will often be registered on the land Title, making the sub-lessee a registered interest holder for the duration of the original contract (usually a lifetime). If entering into this type of arrangement, it is important to understand how will this affect the security of your ingoing contribution and what timeframes are imposed for the return of any funds owed on exit.
These models, together with standard lease loan models, represent difficulties given the nature of leasehold tenure in ACT, and are largely why the loan-licence model is preferred by operators.
Unit title residential agreements
This type of agreement allows the prospective resident to purchase a unit and become the registered title-holder, granting them an interest in the property which can be sold to another eligible resident or included in your estate. A unit title resident becomes a member of the owners corporation or committee and shares responsibility for managing the common village property and facilities with other residents.
As with other agreements already discussed, additional support services, such as maintenance or meals attract fees from an approved provider.
Company title residential agreements
Far less common in the ACT and indeed most States, this type of agreement involves a group of units or residences owned by a corporation whereby residents buy shares in the corporation to obtain occupancy rights for a particular village residence.
As a shareholder in a company title, you are required to attend committee meetings with other shareholders (residents of adjoining units) and contribute to the management of common property and shared facilities as with the unit title arrangement above.
Choosing a village – documents you will receive
Under the Retirement Villages Act 2012 (ACT), operators of loan-licence retirement villages must provide a disclosure statement (within 14 days of request) that outlines the services, facilities and associated costs for moving into and living in the village.
Disclosure periods, cooling-off and settling-in periods
Committing to a retirement village contract involves a number of complex steps. It is important to seek legal and financial advice to ensure you fully understand the terms and conditions.
Within the ACT, you are entitled to fourteen (14) days to review the contract and the disclosure statement before signing. Once you have signed and the operator provides you with a copy of the contract signed by them, a cooling-off period of seven (7) business days is provided, enabling you to rescind the contract without loss or penalty by providing written notice to the provider.
Should you wish to cancel the contract after you have moved into the retirement village, there is still a ‘settling-in period’ which is outlined in the contract terms and is usually the first 90 days of occupancy. In most circumstances, a resident who changes their mind during this period can terminate and recover their ingoing contribution less reasonable costs incurred by the operator (up to a maximum of $10,000). This may be significantly less if the resident must withdraw for reasons of needing upgraded care, such as in an aged care facility.
Retirement village contracts generally come with a range of associated fees and charges, including (but not limited to):
- Wait list fee
- Upfront cost (ingoing contribution or purchase price)
- Contract preparation and legal fees
- Ongoing recurrent service fees (these should be itemised)
- Administration fees
- Owners corporation levies
- Exit or departure fees (outgoing)
Financial and legal advice is recommended before entering into any contract.
Under most agreement terms, village operators are responsible for managing cleaning and maintenance of common areas, gardens and facilities, insurance, administration, and rates and taxes for the common property.
Many village providers offer additional services for a fee which are usually detailed under a separate Service Agreement, and can include delivery of meals, onsite medical treatment, security, a village bus or in-house entertainment, as well as different levels of care and accessible accommodation.
Key points of the Residence Contract
The terms and conditions of retirement village contracts in the ACT, as in most States, have become increasingly complex over the years. With legislation updated only a couple of years ago and undergoing further review, understanding your contractual rights and obligations can be challenging. At a minimum, all contracts should provide:
- details of ingoing contributions
- recurrent charges
- service options (sometimes under a separate Services Agreement)
- rights and responsibilities of resident and provider
- a list of fixtures, fittings and furnishings provided in the residential premises
- a set of Village Rules which provide information on things like visitors, noise, security, pets, garbage collection, parking, repair and maintenance processes, dispute resolution, and provider access to a resident’s premises
Leaving the village
Depending on the type of contract and village, leaving might require selling or transferring your interest in the village or providing written notice of your intention to vacate to the village operator. It’s important to note that under a typical loan-licence agreement, a departure fee and associated fees will likely be payable and will have to be considered and budgeted for when deciding where to move.
Throughout Australia the retirement village landscape continues to shift as governments scramble to ensure protection for both providers and residents, to cater for a variety of models in the market, and to provide ongoing accommodation and lifestyle options that are feasible for our seniors into the future. The ACT is no different, yet faces its own challenges with different types of village models / agreements available and many changes no doubt yet to come.