Fees and charges

In its code of practice, the Retirement Villages Association reminds residents that: "retirement villages are not free. Buying into a retirement village involves purchasing a bundle of day to day services to be provided on a long term basis. Residents are buying a lifestyle, not just a property or a unit."

But John Greenwood, from the New Zealand Law Society, says what people don't realise is that retirement villages are not a financial investment. "It's not really an investment, what you are buying is security. I don't think the industry has communicated that very well."

The new Act requires all charges to be clearly spelt out. As well, all deposits for maintenance must stay in the maintenance account and be used solely to pay for the maintenance stated in a village's long-term maintenance plan.

While the new Act requires villages to provide operational forecasts and actual cost reports, there's no requirement to compare the forecasts with the actual costs. Nor is there any requirement to show how capital deductions, if any, are spent within a village.

Maintenance fees

Most operators appear to collect their maintenance money through what is called a "village contribution", a "deferred management fee", or a "facility fee."

Whatever its name, it works on a "use now, pay later" basis and is deducted from the money residents receive from their unit or villa when they move out of the village. The money is used for building maintenance and upgrading the facilities. Operators tend to charge a 20 to 30 percent deferred management fee, spread over a three- to five-year period.

There's often a maintenance component in what's called the "weekly fee" or "service fee".

According to the Retirement Villages Association, "the service charge will normally include local council sewerage and water rates and external or internal maintenance of villas and apartments. This could also cover garden and lawn maintenance, building repairs and fire insurance, a village bus, management and nursing staff and the operation of an emergency call system."

Weekly fees

There's a wide range of charges for the weekly or service fee. According to a Retirement Commission survey the median fee was $300 a month. On top of that we also found some operators that charged an administration fee of one or two percent upon the sale of a unit. And residents are expected to pay for their own telephone, power and contents insurance.

Auckland lawyer Brian Ellis (pictured right) believes the scope of the weekly fees is too wide and residents are paying costs that should be met by the village operator. He questions why residents are paying an operator's auditing and legal fees, marketing costs and for the time taken to prepare the prospectus and investment statements - all of which directly benefit the operator. "When an elderly person invests in a bank or finance company the bank or finance company routinely meet these costs, not the investor," he says.

We found several villages, who expect the buyer to pay the operator's fees (anywhere from $350 and more) for preparing the documents - something that's virtually unheard of in other types of conveyancing. Even in commercial leases parties usually pay their own legal costs.

One-off charges

Then there's also the issue of one-off charges that operators try to levy on residents.

Take the case of Summerset Retirement Village in Trentham. The village operator recently tried to charge residents 30 cents a day for electricity, generating an extra $16,000 a year. Management eventually reconsidered, but only after opposition from residents.

Summerset confirms that it did attempt to raise the electricity fee but dropped the proposal because it did not consult properly with residents. They say they were simply passing on the power company's charge. This illustrates just how vulnerable residents can be.