For many there comes a time in life when a decision needs to be made on whether to make the transition into a retirement village. In most cases a prospective resident will need to firstly sell his or her home in order to fund the substantial up-front payment that is required to be made upon entry to a retirement village commonly known as the in-going contribution.
The in-going contribution is effectively an unsecured and interest free loan paid by the resident to the retirement village which secures the resident’s right to reside in the retirement village, and will be partly repaid to the resident at some point in time after the resident exits the retirement village.
Importantly, pursuant to the contractual documentation and statute, the retirement village may only have to make this part repayment of the in-going contribution (i.e. the resident’s exit entitlement) in 6 months’ time after the resident has vacated the retirement village or in some instances even beyond 6 months of the date of vacation.
Emphasis must be placed on the expression “partly repaid” as there are significant exit costs which will be borne by an outgoing resident, and these exit costs are usually couched in legalese contained within the contractual documentation that was signed by the resident prior to entering the retirement village.
For this reason, it is vital for a prospective resident to obtain legal advice on the contractual documentation to ensure that he or she has a comprehensive understanding of same, particularly the estimated exit costs (which are often in the vicinity of 30 - 40 % of the in-going contribution) to avoid unwarranted surprises when the time comes for the resident to exit the retirement village.
Notably, entering into a retirement village should be seen purely as a “lifestyle” as opposed to an “investment” decision, one that will ultimately entail considerable cost to the resident.
The Retirement Villages Act 1986 (Vic) (“the Act” ) provides a broad framework that regulates the relationship between a resident, a village owner and manager, and gives some protection to residents, however the contractual documentation will generally contain terms that heavily favour the rights of the retirement village’s owner and manager.
There are two main types of tenure for retirement village contracts, one being “strata title” (i.e. freehold tenure) where the resident becomes the registered proprietor of the unit, and the other is the more commonly used “loan-and-lease or licence” (i.e. leasehold tenure) arrangement.
All such contracts also include ongoing service or maintenance charges that a resident has to pay to the retirement village, usually on a monthly basis, which essentially covers the cost of the services and facilities provided at the retirement village, and such charges are indexed in line with the Consumer Price Index (“CPI”).
Relevantly, any increases to the ongoing service or maintenance charges that are greater than CPI must firstly be approved by a resolution of the residents’ committee or a resolution of a simple majority of residents. Alternatively, Section 38 of the Act permits a retirement village to increase such charges in the event that an award has increased salaries or wages of the retirement village’s staff, or the law has increased taxes or charges relating to the retirement village. Furthermore, a resident may have to keep paying the ongoing service or maintenance charge for a period of up to 6 months after vacating the retirement village.
Some retirement village contracts also draw a distinction between reinstatement and renovation costs upon exit, and the difference in such costs can be considerable.
The law requires a retirement village to provide a prospective resident with a disclosure statement at least 21 days prior to signing a retirement village contract. Such disclosure statement will contain certain mandatory information and will basically provide a condensed summary of the key items that are contained within the contractual documentation.
Retirement villages vary a great deal in size, the services they provide and cost, thus care should be taken to select a retirement village that is congruous with your needs.
Given the complexity with and varieties of retirement village contracts, it is highly recommended that all prospective residents obtain legal advice prior to signing.
This article is intended only to provide a summary of the subject matter covered. It does not purport to be comprehensive or to render legal advice. No reader should act on the basis of any matter contained in this article without first obtaining specific professional advice.
DISCLAIMER: We accept no responsibility for any action taken after reading this article. It is intended as a guide only and is not a substitute for the expert legal advice you can get from De Marco Lawyers and other relevant experts.