Things To Consider When Buying A Unit In A Retirement Village
Purchasing a unit in a retirement village can be a daunting process. While the Retirement Villages Act 2003 was enacted to provide some protection for residents of retirement villages, it has also introduced some legal and financial complexities which can be difficult for the uninitiated to navigate.
One of the principal aims of the Act is to ensure that intending purchasers are fully informed of such things as the full or true cost of purchase of the unit, together with ongoing charges and any exit fees. Another aim is to allow intending purchasers to evaluate the financial viability of the retirement village, because in many cases the purchaser will be paying most of their life savings to the village owners.
Purchasing a unit in a retirement village is usually not an investment; it is a lifestyle choice. I say this because most if not all retirement villages charge the occupier a deferred maintenance fee/accrued facilities fee which is effectively a form of depreciation. In other words the purchasers or their estate will usually receive less than the initial purchase price when occupation ceases (usually on death or if the occupier needs to go in to hospital care). Additionally, some retirement villages also charge a refurbishment fee which they used to renovate the unit before it is on sold.
There are clearly a number of practical matters to take into account when purchasing a unit, such as what are the units like and what kind of facilities and support are available. From a legal and financial perspective the issues are:
- The legal ownership structure and security;
- The true cost of your purchase (including entry fees and ongoing charges) together with potential exist fees; and
- The financial viability of the retirement village itself.
Once a retirement village and unit have been selected, the retirement village’s solicitor will prepare documents to record the transaction together with the rights and obligations of both parties. Typically these documents can run to over 50 pages and are not particularly “user friendly” for the layperson. The law requires that a purchaser must obtain legal advice before signing these documents. There is also a “cooling off period” so that a purchaser can cancel the Agreement if the purchaser has a change of heart.
Typically, it is at this stage that a lawyer first becomes aware that a client intends to purchase a unit in a retirement village. However, it is my suggestion that it is far more prudent to engage a lawyer at a much earlier stage. You should also consider engaging an accountant to look at the financial viability of the retirement village as you will be presented with financial disclosure documents detailing the village’s financial position. Clearly this has a cost but it could just stop you from making a very bad decision – at the very least you will be fully informed before making your final decision.
If you have any questions arising out of this article you can phone me on 578 9988 or email me at firstname.lastname@example.org.
Please note that this article is intended for general guidance only. Each person’s circumstances will be different. You should always consult a lawyer in relation to your specific circumstances.
– Originally written for Grey Power Marlborough –