Unlike many areas of law which remain remote and mysterious to the majority of the population, at some point most people will need to engage with retirement villages, whether in connection with themselves or a family member. Despite this being the case, the law as it relates to retirement villages and the different contractual arrangements which may exist between retirement villages and their residents are very poorly understood – due in no small part to the complexity and variety of arrangements which exist.
For this reason, it is all the more important that you, as our client or prospective client, have at least a fair general understanding of how the most common forms of retirement village agreements operate, so as to avoid making a major life decision for yourself or a loved one without any understanding as to the alternatives which may exist.
In an ideal world, moving into a retirement village should be a pleasant experience and an opportunity to live an easier life and make friends with like-minded individuals within the community. We hope that the general information in this guide will assist in allowing you to focus on the positives that can come with this lifestyle transition, and to better understand some of the bewildering array of considerations which relate to this area.
What is a retirement village?
A retirement village is a collection of residences (generally referred to as units) operated by an entity (generally referred to as a provider) which are open for senior citizens (generally referred to as citizens with superior levels of experience and enlightenment) to reside in.
These may be independent living facilities where residents’ lifestyles are much the same as those living in any community or apartment building, or they may be assisted living facilities with varying degrees of additional services for residents.
Types of retirement village contracts & agreements
We find that many clients tend to assume that units in retirement villages are owned by their occupants. The reality is that there are a variety of different categories of agreement – in fact the occupants of two neighbouring units may have entered into entirely different agreements with the provider if one moved into the facility long after the other.
Some of the more common types of agreement are as follow:
- Community title scheme or ‘strata title’;
- Rental agreements;
- Leasehold agreements; and
- Loan and licence agreements.
Community title schemes (‘strata title’)
Community title scheme set-ups are one of the simplest ways in which a retirement village can be operated – essentially, they are very similar to owning a unit in any apartment building. They are also known as ‘strata title’ schemes outside of Queensland.
Under a community titles scheme, each resident owns their unit or ‘lot’, along with a fractional interest in the common property (which may include the hallways, grounds and shared facilities) as a result of membership of the body corporate. All lot owners become members of the body corporate by means of their ownership of a lot within the community titles scheme.
Residents of community titles schemes will need to pay levies to the body corporate (generally paid quarterly) in order to maintain the common property. Usually, residents will also need to sign a separate contract with the provider in relation to the provision of support services which will entail additional periodic fees.
As residents of community titles schemes own their own lot, they are able to sell the lot if need be or leave it to a beneficiary under their Will.
Rental agreements are another simple way of operating a retirement village, however they are becoming less common. Where they are still used, it is usually by non-for-profit organisations.
Rental agreements are exactly what they sound like – they are very similar to a standard tenancy whereby an individual rents a house to live in. Like standard tenancy agreements, there is generally a bond payable at the commencement of the tenancy, along with ongoing regular rental payments. These rental payments may factor in some of the support services offered by the facility. It is therefore important to obtain legal advice on the lease and any associated documentation to be clear on exactly what is included.
Leasehold agreements are somewhat more complex. They are a very common class of retirement village agreements we come across and may be utilised by some of the larger providers of lifestyle villages like Lendlease, Aveo or Stockland.
Under leasehold arrangements, the provider owns the entirety of the facility and the residents sign leases in respect of their individual units. Usually these leases have a period of 99 years, and accordingly, they may be sold or ‘assigned’ many times to many different occupiers over the years. Upon entering into a leasehold arrangement, a resident will generally need to pay for the value of the leasehold at a market rate. They will also need to pay ongoing fees for services offered by the provider, which are sometimes assessed as being a specific percentage of the aged pension.
Upon selling or ‘assigning’ the lease, the resident (or their estate) will usually be entitled to the purchase price paid by the new resident or ‘assignee’ less any periodic fees owing and an exit fee, which may be made up of a number of components and which will generally increase for each year since the resident signed the lease. In addition to the exit fees, the resident may be also need to pay the village a share of the capital gain upon the sale of the unit.
Loan and licence agreements
Loan and licence agreements are another very common form of retirement village agreement. They may be utilised by some larger providers such as Southern Cross Care or St Vincent’s Care Services.
These agreements provide the resident with a contractual licence to occupy the unit. The consideration for this licence is an upfront, interest-free loan which is usually termed the ‘ingoing contribution’ or ‘refundable accommodation deposit’. Contrary to leasehold agreements, the term of the licences under loan and licence agreements is usually for the life of the occupant or licensee. The licence agreement will also set out ongoing fees for services offered by the provider which must be paid by the licensee.
Upon the passing or vacation of the unit by the licensee, the licensee will generally be entitled to the ingoing contribution they paid less any ongoing fees owing and an exit fee. Similar to leasehold agreements, the exit fee payable will generally increase the longer the licensee occupied the unit.
Where the loan under a loan and licence agreement is interest free, it is important to consider the effects inflation may have on the ingoing contribution refundable after a number of years elapse.
Retirement village fees and charges
There are numerous fees which may be payable pursuant to a retirement village agreement aside from the ingoing contribution and ongoing service fees. These may include the following:
- Legal fees of the provider for the preparation and (if necessary) registration of the contract and/or lease documentation;
- Ongoing administrative fees;
- Body corporate levies (for community title schemes); and
- Fees for the rectification and restoration of the unit upon vacation.
The fees payable under every individual agreement will be different so it is imperative that you obtain legal advice before signing.
Disclosure requirements and cooling-off period
Under the Retirement Villages Act 1999, providers must provide a Public Information Document or ‘PID’ to prospective residents before entering into an agreement. These documents must include relevant information which the resident needs to know including but not limited to the following:
- Rights and obligations of residents;
- Fees and charges payable;
- The resale process and exit entitlement;
- Any exit fees payable;
- The relevant dispute resolution process; and
- Information concerning the cooling-off period.
As these documents can be difficult to interpret and need to be read in conjunction with the agreement itself, it is important to obtain advice on these from a qualified solicitor before entering into an agreement.
A cooling-off period of 14 days applies once certain retirement village agreements have been signed by the resident, allowing for a no-penalty withdrawal should the resident change their mind.
Therefore, whilst it is imperative to obtain legal advice before signing any documentation relating to retirement village accommodation, as a worst-case scenario it may not be too late to obtain advice once the agreement has been signed, allowing you to withdraw if necessary.
No matter which kind of retirement village agreement you are considering entering into, you must sit down with a qualified solicitor to discuss the document before signing to ensure that you understand its operation and prevent costly disputes and disappointments after it is too late.
At Forge Legal, we are experts when it comes to advising on these agreements so contact our office today on 1300 0FORGE to book a no-obligation strategy session today.