Retirement village contracts: What to look out for

Before moving into a retirement village, you’re likely to be asked to sign a contract called an occupation rights agreement (ORA).

ORAs are standard form, which means you won’t be able to negotiate the terms. Without the power to negotiate any changes, it’s important to check you understand what you’re signing up for. If you aren’t prepared to accept any terms and conditions, it’s best to look for another village that might better suit your needs.

1. Weekly fees

Most villages charge a weekly (or other regular) fee in addition to the capital sum paid for a licence to occupy. There are a range of things to look out for in your contract when it comes to weekly fees.

When weekly fees might change

Your weekly fees have the potential to change depending on your contract. Some villages guarantee that your fees won’t increase for the duration of your ORA, while others retain the contractual right to increase fees periodically. It’s also worth checking to see if fees will change if you move from independent to hospital level care, or if your village is upgraded.

What a weekly fee includes

The weekly fee covers day-to-day operating costs for the village, such as rates, insurance, ground maintenance and village services. The amount, and what the fee covers, will vary from village to village. Double check what your weekly fee covers and what it doesn’t. Do they cover power and internet? Will you need to pay for insurance or a phone plan?

Late payment fees

Some villages might charge you a late payment fee if you don’t pay your weekly fees on time. This can be a flat fee, or it can accrue as interest until paid. Double check to make sure you don’t end up paying more than what you expect.

Fees after you vacate

After you leave the village, you or your estate may be required to continue paying weekly fees until the licence to your unit is sold. While we think this practice is unfair on residents and their families, it’s a common condition found in ORAs.

Check your contract to see how long you’ll have to pay the weekly fee, and how long the operator can take to sell your unit. It might take months to sell, so it’s worth checking if you’ll be charged for this period.

2. Maintenance and repairs liability

Check to see if your contract makes you liable for the cost of repairing or replacing appliances or other fixtures or fittings in your unit, even though you don’t own them. Unfortunately, these clauses are relatively common in retirement village contracts.

Even if your contract says you’re liable, you still have rights under the Consumer Guarantees Act (CGA). Under the CGA, your village operator must provide goods and services that are fit for purpose and of acceptable quality, including appliances and fixtures like underfloor heating in your apartment or unit. If anything in your unit needs repairing, replacement or maintenance, we think the operator should have to pay, even if the contract says otherwise.

3. Guests and other rights

Some contracts might limit your ability to have guests stay with you. Look out for mentions of time limits on guest visits, fees for guests to stay, or rules that prohibit overnight stays altogether in the contract.

Contracts can also limit other rights, such as your right to have pets, what you can do with your garden, how you can decorate and how you’re entitled to use other village facilities.

4. Deferred management fees

A deferred management fee, also called an exit or departure fee, is the fee you pay to the village operator when you move out.

The fee is usually between 20% to 30% of the initial capital sum you paid for your licence to occupy. It typically accrues between the first 2-5 years of living in a village. For example, if you paid $500,000 for a licence to occupy a unit and had a deferred management fee of 30%, accruing at 6% for each year over 5 years, then your deferred management fee would be $120,000 if you vacate the village after 4 years.

This fee is deducted from your initial capital sum before it is returned to you, or your estate.

Check what percentage the operator will take, and how this is calculated.

It’s also important to check if the village operator can charge a second deferred management fee if, for example, you move to a different facility within the village or move from a unit into aged residential care at the same facility.

This is relatively common practice, but we don’t think it’s fair to be charged twice and want new rules to prevent operators doing this.

5. Capital gains

Owning a house is not the same as buying a licence to occupy a unit in a retirement village. Although purchasing a licence to occupy a unit in a retirement village might cost anywhere from $200,000 to more than a million dollars, you won’t usually own the unit. So, when it’s sold, if it’s worth more money than when you bought the right to live there, you might not get any of the capital gains. Instead, the operator may get to keep any capital gains.

Check your contract to see what it says about capital gains. Are you entitled to a percentage, if any? And, if the unit value goes down, will you be liable for any capital losses?

6. Continuum of care

Many residents are convinced to move into a particular village after being promised a continuum of care. This is when you can receive hospital or palliative level care at the same place as your retirement village. Despite these promises, many retirement village contracts won’t guarantee you a place in a care suite and you may, in fact, need to move out to get the care you need.

Following a complaint by Consumer and the Retirement Villages Residents Association, the Commerce Commission warned 12 retirement village operators about potential Fair Trading Act breaches, with six operators warned about continuum of care claims.

When reading the contract, make sure you’re familiar with what happens if you need a higher level of care. Will you receive hospital level care at the same place? Will it depend on capacity? Do you get preferential entry over non-residents? What happens if only one you or your partner needs a higher level of care? And what does all this mean for the fees you pay?

7. Variation to terms without agreement

Sometimes a retirement village operator has the contractual right to update some of its terms and conditions without notice or without consultation or permission. An operator might reserve the right to change their facilities, services, buildings and fees. Unfortunately, there isn’t usually much a resident can do about it.

Guidelines published by the Commerce Commission state terms allowing one party to change the terms of a contract without agreement might be considered unfair contract terms under the Fair Trading Act.

We’re calling for change

Retirement village residents deserve better protections. Currently, the Retirement Villages Act is under review. We’re calling for a range of changes including:

• laws that will better protect residents
• independent advocacy support for residents
• fair contracts that are not heavily weighted in favour of village operators
• a more effective dispute resolution system.