If you’re over 55, you’re probably starting to think about where you’ll live during your retirement years.
Will you stay in your existing home? Downsize to a smaller house? Or move into a lifestyle or retirement village?
For retirees considering the third option, there are lots of boxes to tick on your search for the perfect village. These include the location, accommodation style and on-site facilities. However, it’s particularly important to understand the type of contract on offer, and be aware of all the clauses within before you make a decision.
Unfortunately, this can be harder than it sounds. Not only does the type of contract vary greatly from place to place, the fees and conditions can be completely different too. To help you get started, we’re sharing 5 common questions about retirement village contracts, you must ask so that you can make an informed choice.
1. What type of contract is being offered?
There are two main contracts used in retirement villages – strata and leasehold. With a strata title, you’ll pay a purchase price on the house or unit and be the registered owner of the premises. However, you’ll also need to pay other ongoing fees, and in most cases, exit fees. With a leasehold contract, you’ll pay an ongoing contribution which gives you a long-term lease on the premises – but check the fine print because there will likely be other fees to pay, both ongoing and when you sell.
The third type of contract is a rental agreement, which is commonly used in lifestyle villages. You will own your home and pay rental on the land, and in most cases, your rental contract will not include deferred management fees. Start by asking what type of contract is on offer, and find out the legal implications that go with it.
2. Is a deferred management fee payable?
A deferred management fee, also known as an exit or departure fee, is common in retirement village contracts. Generally calculated as a percentage of your home’s value over a set number of years, it is deducted from the amount you or your estate receives when you sell your home.
As an example, if your deferred management fee was calculated at 3 percent annually over 10 years, you’d be charged 30 percent of the sale price. This can end up being a huge sum and cause great financial stress if you’re not prepared. Find out if exit fees are included in your contract, and make sure you know exactly what they’ll cost you. And remember, you can avoid them altogether, as some lifestyle villages (including Village Lifestyle Park) do not charge deferred management fees at all.
3. How much will I pay in ongoing fees?
Again, how much you pay in weekly, monthly or yearly fees will depend on the village. There can be a big difference too, so do your comparisons carefully to be sure you don’t get stung. Ongoing fees may include rent on the land, an annual power supply charge, administration fees, municipal rates and water rates, to name a few. Some villages may charge all of the above, while others may only charge one or two, so do your sums to find out how it adds up over time.
4. What information will I be provided with?
At a minimum, the village management must provide you with a document that contains the following information:
- Ongoing contribution fee payable
- Departure fee payable
- Your capital gain entitlement
- Amounts payable to maintenance fund
- Services charges
- Resident’s rights
- Dispute resolution process
- Rights to terminate the contract
- Cooling off period once the contract is signed.
5. Can I have a pet? And can my family and friends visit?
When it comes to pets, some villages don’t allow any, but if you already have a pet, they may allow you to bring it with you (but not replace it). Those that do allow pets will generally have restrictions on the kind of pet you can keep.
As for visitors, it also depends on your individual contract. In some villages, overnight stays are fine, while others allow longer periods of up to a month. Here again, it’s important to check each contract carefully to be sure the conditions suit your lifestyle and needs.
Final Word on Lifestyle and Retirement Village Contracts
When comparing village contracts, it can be handy to record things on a spreadsheet – that way, you can easily keep track of all the important clauses and fees. Work out what’s essential, what you’d like to have and what your budget will allow – both now and in the future. This will help you narrow down your choices and find the right fit.
Because some retirement village contracts are complicated and hard to understand, it’s always wise to seek legal advice before you sign anything. And don’t be afraid to ask questions! Because asking that niggling question and getting the right legal advice now, could save you thousands and thousands of dollars in the coming years.
Over to You
Do you have a question about lifestyle or retirement village contracts? We’d love to help!
Want to know more about deferred management fees and other traps related to lifestyle villages? Download our FREE guide, 20 Questions You Must Ask BEFORE Choosing a Village.