Contract complexity

In 1999 the Law Commission released a report on retirement villages calling for "special protections" of residents. It noted that "the complexity of such contracts is probably unmatched by that of any other contract that a consumer may be called upon to adhere to."

The new Act, which has been welcomed by the Retirement Villages Association, aims to make retirement villages more consistent in the terms and conditions they offer.

All villages are required to provide residents or intending residents with a disclosure statement, an occupation-right agreement, code of residents' rights, and a copy of the code of practice (which comes into effect from September 2007). There's also a mandatory 15-day "cooling off" period, and all intending residents must get independent legal advice before signing a contract.

The importance of the new protections can be seen from a recent Retirement Commission survey of retirement villages.

The survey involved interviews with 52 operators and 173 residents. But not all villages that were approached agreed to take part. Of the residents in the villages who did participate, 97 percent of respondents said they understood the financial implications when they chose their village. But 11 percent didn't know what they would get back when they left their unit, and 31 percent didn't know if they could keep their capital gain. These findings were despite 60 percent of residents receiving legal advice before they entered the village.

Quality of legal advice

Barry Owen (pictured right), chairman of the Summerset Village Trentham Residents Committee, welcomes the idea of legal protection but questions how effective it will be. The 124 residents in his village are represented by 90 lawyers, some of whom he considers give out "shocking" legal advice.

John Greenwood, who represents the New Zealand Law Society on retirement village issues, echoes Barry Owen's views. Greenwood described his profession's knowledge of the Act as "very poor". "We're going to need a lot of publicity," he says.

The Retirement Villages Association and the New Zealand Law Society have organised seminars around the country to help get the sector up to speed.

Another problem identified by Barry is that operators lock residents into contracts they can't afford to get out of. "People in retirement villages have burnt their bridges. They've sold their houses, all they are left with is a licence to occupy ... they really can't afford to go to another village or go back into the community."

The Retirement Villages Association argues that residents have freely entered into a contract - and in many cases have taken legal advice before doing so. Residents are buying a lifestyle and a bundle of benefits including 24-hour care, emergency systems and community connection.

But that doesn't address the fact that contracts are weighted in an operator's favour: the residents, who are on individual contracts, have little bargaining power. Nor do they have a political lobby group to look after their interests.

Types of ownership

Retirement villages usually offer new residents either a licence to occupy or a unit title. There appears to be very little difference in price between the two contracts.

• A licence to occupy gives a person a licence to occupy a unit or villa or apartment, and to use the common areas. But you don't own your unit or villa - and you can't borrow money to buy it.
• A unit title provides individual ownership or freehold title within a property, such as an apartment block or retirement village. It also gives access to common areas. Like other property a unit title can be bought, sold, or mortgaged. But retirement villages that offer unit titles usually have an "encumbrance" over them. This means there are restrictions on who can buy the property.