The retirement village residence contract is what outlines the relationship between you and the village operator for the duration of your stay in the village.
It is worth reading the articles on Ownership and Tenure HERE and Understanding Retirement Village Contracts: A Plain English Guide HERE before reading further, as this article will get down into the details on your type of residence contract.
Retirement village contracts – Lease vs Licence
Residents buy a right to occupy a retirement village unit, in the form of a lease or licence. This is not dissimilar to a lease that say a shopkeeper will take out to rent a space in your local Westfield shopping centre.
Leases are primarily used by for-profit retirement village operators, whereas licences are typically used by not-for-profit village operators such as church groups and charities. There is very little difference between them, and their terms and conditions are identical. The main difference, which should be of little interest to you, is that leases are registered by the state authorities and sit on the title of the land. Licences are not registered with state authorities and do not sit on the title of the land.
Why the different contract types? I don’t honestly know. I suspect it may have something to do with trust – the more formal nature of the lease arguably provides greater protection for the resident from the greedy corporate operators, which not-for-profits don’t need because they are more honest, right? Right?
Entry costs
The biggest cost is your ingoing contribution, or the cost of buying your lease or licence. You can read more about entry costs HERE.
If you sign a lease to occupy your unit, you will likely be charged transaction fees by the village operator for lease registration upon entry, and lease de-registration when you leave. These fees are not onerous, usually only a few hundred dollars. If you are being charged more than a few hundred dollars, you can always search the internet for lease registration fees in your state or territory and compare them with your charges to keep the retirement village operator honest!
Freehold retirement villages
There are a few freehold villages around the country, but they are pretty rare. Their big selling point is that you actually own the unit that sits within a strata or owners’ corporation structure. Owners can participate in the operation of the site through an owners’ committee. There is a retirement village operator who is appointed by the owners’ committee and may also act as the strata manager and caretaker. The village operator may also own the title to the community facilities so they can embed their management rights into perpetuity – obviously, you wouldn’t sack the village operator if they own the swimming pool, bowling green, clubhouse, etc, because they would close them all down!
When you buy into a freehold village, you pay stamp duty. Stamp duty is not applicable to retirement village leases or licences. This can add 1-3% to your purchase price.
Freehold villages come under the purview of the state community titles legislation. In order to restrict entry age to older, retired people, these complexes must also be recognised as retirement villages, which come under the state retirement villages legislation. Therefore, you have two different pieces of state legislation, likely administered by two separate state government bodies, that prescribe the way the village is to operate. Often, these two Acts are not compatible as they were not designed to work together. It gets worse – freehold villages may have two different resident committees; one under the strata or owners corporation and one under the retirement villages legislation. In my bitter experience, it is rare for these two committees to see eye to eye and there are often power struggles between the two.
Freehold retirement village residence contracts are also much thicker!
To bring in the retirement village component of the site, your contract will include the sale document for you to purchase the freehold title, which you then lease to the village operator, who then sub-leases it back to you. Three separate documents in one – watch your solicitor salivate over that! Admittedly, the lease and sub-lease are usually the same document with regards to terms and conditions.
The last word
It is worth understanding the differences and nuances between the three forms of residence contracts and then identifying which document you will be executing to move into the village of your choice.
But for my two cents worth, don’t spend too much time worrying over this. It is more important that you move into a community that meets your needs around location, amenity, services and social interaction. In other words, get the right village with the right vibe for you, and don’t worry about the residence contract.
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