People occasionally approach me for advice about acquiring a unit in a retirement village. More often though, I have to consider the documentation they have signed as they wish to dispose of the unit in order to fund their move into permanent residential care. Many people have very positive experiences of life in the retirement villages.
The villages often have extensive social and sporting facilities, well-maintained grounds and there is the added pleasure of being near to many neighbours of similar age and with similar interests to them.
There are however some common problems that have confronted several of my clients.
1. While the acquisition price for the unit is usually a little lower than what they might pay for a similar freehold unit in that location, they are usually not purchasing the unit but instead acquiring a right to reside in the unit for the rest of their and/or their partner’s lives.
2. These interests are harder to dispose of than freehold owned property particularly when the property market is not buoyant.
3. In a large complex there are invariably many virtually identical units on the market at the same time which can affect the time it takes to dispose of a unit and the price realised.
4. The larger developments often are developed in stages and it is not unusual that a resident is needing to dispose of his or her unit while the developer is actively marketing new units it has just developed.
5. Retirement villages contracts usually contain a clause directing that the marketing of the unit will be done only through the agency of a selling agent appointed by the operator.
6. Almost all contracts provide that the purchaser will on the disposal of his or her interest in the unit pay a deferred management and administration fee to the operator which could be between 25% and 40% of the price realised on disposal.
7. A reinstatement clause in the agreement will require the vendor to pay for the cost of a significant renovation of the unit with items such as new kitchen and bathroom fittings, cabinetry, floor coverings, window treatments etc.
Callum Foote of Michael West Media in a very interesting Retirement Villages article quotes Robert Drake a former senior executive in financial literacy at ASIC as saying that most retirement village contracts are among the most complicated financial contracts he has ever seen.
At present retirement village contracts in WA are regulated only to the extent that the operator needs to give full disclosure to the intending purchaser. At the time of choosing to move into their new lifestyle complex, purchasers are given a mass of glossy brochures, booklets and bound contract documentation, often running into hundreds of pages. It is unsurprising that so many people are genuinely shocked when they realise the extent of the costs they have to absorb when disposing of their interest in a retirement unit.
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