Retirement Villages and the Law

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Entering a retirement village is often cited as the worst investment you could make in your life. In all but the most extraordinary cases you will not see a great portion of your purchase price ever again, with the majority of residents in villages for 5 years or more losing around 33% upon exit and re-sale. So are retirement village residents poor investors?

The answer is no – they aren’t investors at all, or at least not in the usual sense. This is because there is usually no prospect of residents making a profit on retirement village transactions. Their losses are agreed and written into their contracts. The reference to investment stems from two sources. One is misplaced, the other is outdated. The former plays on a misconception that retirement village residents own their residences. They don’t. What they get is a right to occupy a particular space in their village on an arrangement similar to a lease. The later source refers to the old method of retirement village contracting under the Securities Act, where a prospective resident would receive an investment statement together with prospectus. These were done away with when the Retirement Villages Act 2003 finally came into full force in May 2007.

The bargains aren’t necessarily any better under the new regime, but the legal language is certainly tidier and both current and prospective residents are offered a greater degree of protection. One of the key benefits for current residents is greater security if their village becomes insolvent. Statutory supervisors are required to monitor the financial position of villages, and may direct villages to take certain action in order to avoid money troubles. Where a village faces insolvency, residents now have rights ahead of those who have security interests. Consequently, for example, residents cannot be evicted or denied any facilities they would normally be entitled to by a village’s mortgagee where default occurs. Prospective residents must now receive a great bundle of disclosure documentation before they can sign the Occupation Right Agreements that will gain them entry to their villages. These documents detail the rights and obligations of both resident and village, and extraordinarily high standards are required of lawyers to ensure prospective residents understand the nature and effect of these. The new disclosure requirements mean it is now easier than ever for residents to assess just how much money they will part with over a place in a retirement village, yet retirement villages do not seem to have suffered any loss of popularity as a result. This is because residents are not so much losing money as spending it in return for a lifestyle. Retirement villages appeal with the facilities and services on offer as well as the community and security they provide. For many, money paid for these is money well spent.

If you are contemplating purchasing within a retirement village, please contact Gaze Burt and get a little advice.

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Les Allen
Partner

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