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What is an Ingoing Contribution?

Understanding retirement village contracts

Last year there was quite a bit of media exposure surrounding the various payments made by residents at retirement villages. Most of it, to my mind was misguided.  But the fact remains some consumers have been confused as to the array of various payments they are required to make (at the start, during their stay, and on exiting). The confusion isn’t helped by different terminology employed, different tenure structures, and ultimately different models and products being offered to the market.

The biggest issue for the industry has been the misnomer applied to the ingoing contribution payment (and return of it), particularly when a resident moves into the more prevalent lease-loan model.

When you enter into a lease / loan style retirement village contract, you will likely be required to pay the village operator an interest free loan, (or ingoing contribution as it is widely described), as consideration for your right to reside. This loan will be repaid to you, or your estate when you leave the village.

In this circumstance there isn’t any purchase or sale of an accommodation unit, merely an agreement for a loan of money and how and when that money will be returned. A resident won’t be granted the lease or occupancy right by the operator unless they provide the interest free loan.   The Loan is the consideration for the grant of the rent-free long-term lease. It may be a subtle difference, but is clearly one many in the industry choose not to acknowledge, when marketing their product “for sale”.

In these scenarios a resident doesn’t buy the unit. They never own it. They can’t take a mortgage over it.  Further, at the end of lease, the right to reside expires immediately, and the operator doesn’t “re-sell” the unit.  There is simply another transaction involving a separate loan with a different resident, and the honouring of the earlier agreement to repay to loan (less any agreed fees).

Much has been said about the lost opportunity to correct a number of these things in the recent rewrite of the Qld Retirement Villages Act (which was rushed through late last year, despite the many years of industry consultation), however we liken the ingoing contribution as something as simple as a bond (a bond which the operator is free to utilise).

If residents can appreciate the ingoing contribution as akin to a bond (or better still an interest free loan) on entry, then far fewer will be asking questions or complaining as to why they have to pay a fee (DMF or Exit Fee) when leaving the village. Last year, the media had fun (at the industry’s expense) attempting to describe this as paying when you arrive, and paying again when you leave. It’s simply not the case.