Buying A Right To Reside In A Retirement Village

Posted by arenburg
22 October

We often talk about ‘buying a unit in a retirement village’ or ‘buying a right to reside in a retirement village’, etc. but what exactly are you buying when you ‘buy into a retirement village’? 

There are a number of different ways that you can purchase a right to live in a retirement village.  The modes of ownership differ throughout Australia but in Queensland, the two most common options are the purchase of a freehold interest and buying a right to reside that is supported by a lease or licence. 

Freehold ownership

Freehold ownership is similar to purchasing a home. You own the unit and hold the title to the unit. This title is registered and gives you secure tenure over the unit. Although this may seem like the most secure option, you will need to consider complicating factors like the requirement to pay stamp duty, body corporate fees, paying rates and other outgoings.

For example, the owner/operator of the village will most likely require you to enter into a management contract regarding your contribution for costs such as maintenance of the amenities. This contract will cover things such as the provision of services by the village operator, upkeep of the village, security services and the like.   Payment under this contract is likely to be made fortnightly or monthly and should be budgeted for in excess of the actual purchase price of the unit.  

Freehold ownership in a retirement village is not completely like when you purchase a house. Your property will also be subject to the Body Corporate and Community Management Act which introduces certain obligations beyond those of owning a detached house. You cannot opt out of being part of the body corporate. Your ownership is also complicated by factors such as the village owner/operator usually owns the community facilities and amenities and these are under a separate title to your unit. Your occupation of the unit will also be governed by the Body Corporate by-laws which are an additional set of rules particular to each scheme that regulate the behaviour of owners, occupiers and their invitees on the common property and within their lots.

Also, owners/operators of retirement villages must comply with the Retirement Villages Act and this can have implications for your freehold ownership and how it differs from freehold ownership in the general world of home or unit ownership.   The village owner/operator may also have the right to approve who lives in the village.

Freehold ownership is becoming less common and tends to be found in retirement villages that have been in existence for a number of years. The new retirement villages that are currently being built and marketed are unlikely to offer freehold ownership.

Leasehold arrangements

 Many of the newer retirement villages offer leasehold arrangements rather than freehold ownership to secure your right to reside in the unit of your choice.

You may be familiar with leasing property in the general community. Leasehold arrangements in a retirement village are however a bit different. By entering into a leasehold arrangement for a unit in a retirement village for a specific period of time. As a general rule of thumb, such leases tend to be for a period of 99 years.  The lease for the unit will be registered on the title for the retirement village and the resident will have an exclusive right to reside in that unit.  You will not be required to pay stamp duty in a leasehold arrangement.

Leases are granted pursuant to a right to reside that you buy, typically from the village operator or an outgoing resident. The right to reside application will typically be quite a short document with the bulk of the provisions relating to the occupation and use of the unit contained in the lease document.

There is also likely to be a requirement to reinstate/refurbish the unit when you exit the village. This is an additional cost that you should budget for to ensure that you have adequate funds to pay for the reinstatement/refurbishment costs when the time comes. You will also most likely be required to pay for the marketing costs and any agents’ fees associated with selling the unit.

In a leasehold arrangement, the lease document is also likely to have provisions dealing with who will benefit from any capital gain or bear the cost of any capital loss. Generally, any capital gain may be shared (usually in favour of the owner or operator of the village) but any capital loss is usually borne solely by the resident. You should consider this matter very carefully. 

Licence to reside

A licence to reside is similar to a leasehold arrangement in that the licence provides you with the right to live in the specified unit, however, you will not own the unit and will not have any registered legal interest in the unit.

As with the arrangements under a lease, in addition to the amount you pay to be granted the licence (your entry payment) you will also need to pay an ongoing service charge to cover your right to use the amenities and services provided by the village operator and for the maintenance of these amenities and the village in general.

The other costs and related considerations that apply for a leasehold arrangement as set out above also apply for a licence to reside.

 Given the complexity of the different legal interests that may be purchased to enter into a retirement village, it is important to obtain legal advice from a legal practitioner with experience in this very specialised area.

If you would like advice on retirement village contracts, please don’t hesitate to get in touch on (07) 31815554 or .

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