Financial Implications of Buying in a Retirement Village

How to buy in a retirement village

In New Zealand there are four common legal titles used when buying into a retirement village:

1. Licence to occupy

A license to occupy (LTO) is a legal paper that grants you permission to live in a unit within a retirement community. It’s important to note that having an LTO doesn’t mean you own the unit. Instead, it allows you to stay there for as long as you want. LTOs are the most common type of occupancy agreement in retirement villages.

2. Unit title

In a village organised with a unit title structure, you have ownership of your own unit. Alongside this ownership, you become a member of a group called the body corporate. This group takes care of maintaining shared areas within the village. Usually, the body corporate enters into an agreement with the village manager. The village manager oversees the daily running of the village and helps manage the affairs of the body corporate.

3. Cross lease

With a cross lease, you and others share ownership of the land and the units on it. You grant each other leases to live there. These leases outline details such as how long you can live there, how the land can be used, and residents’ rights.

4. Lease for life

In this scenario, you have a lease for a unit or property in the village, and this lease continues until you either pass away or decide to leave the village. Additionally, some villages provide rental units for residents.

Types of cost

Initial costs

Capital sum

To secure your place in a village, you’ll need to make an initial payment, often called a capital sum, for an occupation right agreement. This agreement grants you the right to reside in your unit and enjoy the village amenities. When you eventually leave the village, either by choice or passing away, this capital sum will be refunded to you or your estate. However, before returning the capital sum, the village typically deducts a deferred management fee, usually around 20-30% of the initial payment. However, if you happen to leave the village within the first five years, the management fee might be lower.

This 20-30% deduction, often referred to as a fixed deduction, covers various expenses, like communal facilities upkeep, management costs, or long-term maintenance. Different retirement villages might use alternative terms in their occupation right agreements instead of fixed deduction, such as deferred management fee, capital sum deduction, depreciation, village contribution, donations, amenity or facility fees.

Deposit

Before you move into the village, you might have to pay a deposit, which will be paid to the village’s statutory supervisor. Legally, all retirement villages are required to appoint a statutory supervisor. These are independent stakeholders who monitor the financial positions of the villages they’re appointed to and the security of the residents’ interests. Statutory supervisors are licensed by the Financial Markets Authority.

The retirement village only receives your money after a cooling-off period, during which you can change your mind and cancel the contract. This cooling-off period must be at least 15 working days, although in some villages, it might be longer.

Ongoing costs

Weekly fees

While residing in the village, you’ll be responsible for paying weekly fees. These fees encompass various expenses like rates, insurance, and operational costs, along with services such as security, gardening and maintenance. Some villages provide a wider array of services within these fees or offer different personal care packages. However, others allow you to choose and pay for the specific services you require.

Typically, you’ll also need to cover expenses like telephone and power bills, contents insurance, and medical costs, in addition to your usual household and personal expenses. However, serviced apartments are an exception to this rule. Generally, these apartments bundle these costs into one package, which may include services like food, cleaning, and care services.

Final costs

Exit fees

When you decide to end an occupation right agreement, you or your estate will typically receive back the original capital sum, but with deductions. These deductions might include:

• The deferred management fee, which could also go by terms like village contribution, fixed deduction, facilities fee, or amenities contribution
• Any previously agreed-upon deductions for administration, sales, or legal fees
• Any outstanding service fees that you haven’t paid by the termination date

It’s crucial to understand that these deductions usually mean you’ll end up with less money than what you initially paid to enter the village. This is especially important if you plan to leave the village to move elsewhere. You might not have enough funds left to buy into another retirement village, or to purchase another type of property if you decide you no longer want to live in a retirement village.

Additionally, in most villages, the operator handles the sale of the unit when a resident leaves. This means you or your estate will typically need to wait until your unit is sold before receiving your exit repayment.

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About the author of this page

This guide was written by Canstar Content Producer, Caitlin Bingham. Caitlin is an experienced writer whose passion for creativity led her to study communication and journalism. She began her career freelancing as a content writer, before joining the Canstar team.