Retirement village contracts in the ACT: The type of village will affect your contract
18 Oct 2017
Moving into a retirement village should be a chapter of life that you look forward to. Some people focus on the benefits of living in a community with people from all walks of life. Others find that receiving the support of a range of services and facilities makes retirement villages an ideal lifestyle choice when looking to downsize in retirement.
As recent attention in the news has shown, however, it is extremely important to be aware of the legal consequences involved in retirement village contracts.
Here, in Part 1 of this series of two articles, Snedden Hall & Gallop Lawyers discuss the main types of retirement villages in the ACT. In Part 2, we look at the top ten factors to consider if you are thinking about moving into a retirement village.
What is a retirement village?
Retirement villages are communities of residences owned or operated by a particular organisation (often described as the provider) which offer accommodation for people aged 55 years or older.
The types of accommodation include independent living in self-contained units as well as assisted living through serviced premises with providers delivering support services such as meals and cleaning.
It is important to note that nursing homes, respite care facilities and Commonwealth-funded aged care hostels are classified differently to ‘retirement villages’. Those options involve a much higher degree of care and support services and are governed by different legislation.
The main types of retirement village contracts
In the ACT, the different rights and obligations of providers and residents can be distinguished by considering where ownership in the residence rests. We will briefly review the four types of ownership and the key features of:
- Loan-licence agreements
- Residential tenancy agreements
- Unit title residences
- Company title residences
Loan-licence agreements are the most common model in the ACT retirement village sector. They are the favoured model by larger providers such as Goodwin, Uniting and Southern Cross Care.
As part of this arrangement, an upfront loan amount (called the ‘ingoing’ contribution) is paid to a provider in exchange for the right to occupy the unit. Residents do not own the premises but instead hold a contractual licence to live in the unit. Often the term of this licence will be designed to last for your lifetime, but there will be provisions if you wish to end the licence earlier.
The licence agreement will set out what additional fees (or ‘ongoing contributions’) will be required on top of the upfront amount and the services that will be provided in return.
It is particularly important that, when you are considering a loan-licence agreement, you are aware of any departure fees that may apply. These will be payable when the licence ends. The fees will often be substantial for either you or your estate. We will examine these further in Part 2 of this series.
Residential tenancy agreements
Residential tenancy agreements are effectively a standard landlord-tenant arrangement. Rather than providing a ‘licence’ to occupy, there is a contractual right to occupy the unit based on the residential tenancy agreement. The rights and obligations will be set out in the contractual agreement in place between you and the owner. The agreement will also be bound by the provisions in the Residential Tenancies Act 1997.
Often, certain services will be provided as part of the ‘rent’ paid under the contract. It is important to be aware of the services that will be included and those that won’t. Unlike a loan-licence agreement, a residential tenancy agreement will not usually require upfront fees (other than perhaps a bond or deposit) or substantial departure fees. Rather, the ongoing contributions will often be more significant.
Another type of retirement village contract is where you occupy the residence under a sublease or an underlease. These arrangements will either be similar to a licence model (with both ingoing and ongoing contributions) or may be more similar to a residential tenancy agreement.
The primary distinction is that the sublease or underlease will often be registered on the Title to the land. This means you will be a ‘registered interest holder’ given the duration of the lease will usually be for the term of your life. This will affect how any of your ingoing contributions are secured as well as the processes involved when the lease ends and the timeframes for the return of any funds owed to you.
Unit title residences
Unit titled retirement villages involve purchasing an individual unit where you will be registered as the title-holder. This purchase will grant you an interest in the property which can be included in your estate or be sold to another eligible resident.
In the retirement village context, your purchase of the title in the unit will run alongside you contracting with the provider of support services, such as for meals or maintenance. Additionally, you would also sign up to the owners’ corporation, a committee of residents who manage the common property and facilities in the village.
Company title residences
Company title residences are much rarer than the three models above, particularly in the ACT. These retirement villages involve a group of units or residences being ‘owned’ by a corporation. To buy-in and purchase a residence in a company title retirement village, you buy a class of shares in the corporation. The constitution and articles of association of the company will set out the rights that attach to ownership of the shares, which will include occupancy of respective residences.
Similar to the unit title arrangement, as a shareholder in a company title, you will also be required to attend meetings with the residents of the adjoining units to coordinate and contribute to the common property and shared facilities.
How can Snedden Hall & Gallop assist you?
Entering into a retirement village is often more complicated than a standard conveyance. It is important to have legal assistance to consider which retirement village model is most suited to your current and future needs. We can help to explain the impact on you, your assets and your finances of the particular arrangements you are envisaging. Snedden Hall & Gallop can apply years of experience with retirement village contracts to your situation. Please contact us today on (02) 6285 8000 or by email.
Now that you are more familiar with the different types of retirement village contracts, you’ll be in good stead to consider Part 2 of this series, which highlights ten things you should look out for before signing up to a retirement village contract.