Without a doubt, the exit of a resident from a retirement village is where most disputes occur. Usually because the exiting resident or their families do not understand the terms of the residence contract they have signed. Clearly, they didn’t find this website in time!
The exit process
The death of the resident or the written notice to terminate starts a process that culminates in the re-selling of the right to occupy that unit. The residence contract outlines the process to be followed and the obligations of the resident and the village operator upon termination.
Generally, the exit process is as follows:
- Notice of termination (or death of resident)
- Vacant possession of unit
- Unit renovation
- Unit marketed
- Contracts exchanged with new buyer
- Cooling off period
- Settlement
- Ingoing contribution refunded
Be warned – this process is not quick, and across the industry it typically takes around eight months from vacant possession to receiving your refund.
1. Terminating your right to occupy
When you “buy in” to a retirement village you buy a right to occupy your unit, in the form of a lease or licence. When you want to leave the village, you terminate your lease or licence with written notice to the village operator. Most contracts ask for 30 days’ notice – exit fees continue to accrue over this time and the resident must keep paying the village fee.
The right to occupy automatically terminates upon the death of the resident.
2. Vacant possession
Following notice of termination (or death of the resident), you have 30 days to clear the unit of personal possessions and do a basic clean (vacuum and wipe down). Don’t go to the time and expense of a bond clean – the village operator will deep clean the unit following any renovation work and this cost will be allocated according to the residence contract (more on this shortly).
Vacant possession includes returning all keys to the village operator.
3. Unit renovation
This is where it gets contentious!
The residence contract will explain what (if any) work is required to be done when the resident leaves the unit and who is to pay for that work. The newer, modern contracts are quite explicit and clear around this topic, however older contracts can sometime be ambiguous and may require legal interpretation.
It should go without saying that any damage or “advanced wear and tear” is repaired at the expense of the exiting resident. This usually includes any resident installed items such as handrails, shelving, curtains, etc.
Other work including modernisation, re-painting or replacing items like carpet are often a shared expense and open to negotiation between the village operator and exited resident. The tension occurs when you have a village operator who wants the make the unit look modern and desirable to maximise the resale value and sell in a timely manner (completely understandable), vs an exited resident who simply wants to maximise their refund (also completely understandable!).
Generally, you are obliged to cover a share of the renovation expense in the same proportion as your share of any capital gain on the resale of the unit (ie, the difference between what you paid coming in vs the resale value). For example, if you are entitled to 50% of the capital gains on the unit, you must cover 50% of the renovation cost. This is a little more complex if your exit fee is based on the resale value of the unit – make sure you read the article on exit costs to understand how to properly assess your refund under this kind of contract.
At the risk of stating the obvious, you don’t want to be spending $50,000 on renovation costs to achieve $20,000 of capital gain. You must negotiate with the village operator to ensure that the renovation spend you incur is proportionate to any capital gain you receive. This becomes difficult with smaller, undesirable units that have not enjoyed an uplift in pricing over time yet still require a serious renovation. Good village operators understand that some residence contracts (particularly older-style agreements) present exiting residents with poor financial outcomes and will take on more of the renovation expense. It is always worth asking and negotiating – at the end of the day, it is the village operator left with the asset.
4. Unit marketed
The unit will formally be put “on the market” once the renovation work and final clean has been completed. In practice however, a retirement village is always taking enquiries and allocating buyers to the specific unit types they are seeking, and it is not unusual for the village to have a buyer ready to inspect and transact on the unit immediately upon completion.
You are within your rights to ask how and where the unit is being marketed. Check the website listings for accuracy. Make cold call enquiries to hear what the sales team are saying about the unit.
It is not in the interests of the village operator to have a vacant unit. They are similarly motivated to re-sell the unit and if you find it is taking a long time to sell, it will usually be due to a slowing market or incompetent sales staff. Retirement village enquiry mirrors the local residential market, so it should be easy to confirm the strength (or otherwise) of the market by speaking with a few local real estate agents.
If you have a strained relationship with the village operator you may be attracted to the idea of using a local real estate agent to re-sell the unit. I would strongly recommend against this in the first instance for several reasons:
- Real estate agents do not understand retirement village contracts and struggle to explain them to potential buyers;
- You have to pay the real estate agents commission, reducing your refund by 2-3%;
- The village operator specialises in selling units in the village and is best placed to qualify potential buyers;
- Villages advertise on similar websites to real estate agents; and
- The village operator has the right to refuse buyers offered by the agent.
If you feel you are not getting the right results after say six months, by all means see if you can interest a real estate agent in taking on the unit.
5. Contracts exchanged with new buyer
The process for buying a retirement village unit will be outlined in the State retirement villages legislation and features many consumer protection provisions such as disclosure requirements, cooling-off and termination options. In Queensland for example, a buyer can rescind their contract for up to seven days after moving into the village!
This means that the buying process can be lengthy, particularly if a buyer pulls out during the later stages of the process. For example, a buyer might sign a contract with a three-month settlement period in which to sell their home. Towards the end of the three-month period, they find a buyer for their home who asks for a 60-day settlement, so they go back to the village operator asking for an extension. The village operator gives them the extension; however the contract falls over towards the end of the extension period. We are now five months down the path, with no buyer for the unit!
For this reason, village operators will give preference to cash buyers – people who do not need to rely on the sale of their previous residence to fund their purchase.
6. Cooling off period
The cooling off period is a typical contract term around real estate purchases that allows the buyer to cancel or rescind a contract if they have a change of mind. It is not a frequent occurrence in retirement village transactions but it does happen occasionally.
7. Settlement
Settlement occurs once the cooling off period has expired and the incoming resident pays the final instalment on their purchase.
8. Ingoing contribution refunded
The exiting resident’s refund (also known as an Exit Entitlement) is due and payable by the village operator after settlement, usually within 14 days.