What to Watch for with Retirement Home Contracts

June 5, 2013

Buying into a retirement village – just like purchasing a house, right? There’s a vendor, a purchaser and a dwelling. How different can it be?

Quite different, actually. Whether you’re looking at a self-contained villa, serviced apartment or some other retirement accommodation, it may be helpful to be aware of key – and potentially costly – pitfalls.

Costs to Move In

The first thing to understand is that while it’s easy to think in terms of “purchasing” a retirement home, you may actually be paying for a long-term lease, making an interest free loan in exchange for a “license” to occupy, or buying shares in the village or units in a unit trust. Because actual freehold complexes are rare, you most likely will not actually “own” your dwelling, even though the price may be comparable to similar properties in the area. This brings limitations in what you can do with the property (i.e., mortgages, caveats, renovations etc).

Costs to Stay

Most people choose retirement community living because of the lifestyle and facilities that are available. Of course, these are not free, and the variously-named “maintenance”, “ongoing” or “recurrent” fees can range up to hundreds of dollars per week. Find out who decides what services are offered at the facility, and how much input residents have into the decision making process. What are your rights if unwanted and expensive services are being provided at the cost of exorbitant weekly fees?

Additionally, residents are also generally responsible for the cost of repairs. Make sure your contract provides a clear formula for identifying resident expenses, as disputes can arise over residents being charged for “maintenance works” that should really be classified as “capital improvements” – and should be borne by the village owner.

Costs to Leave

Many operators make their real money when the time comes for you to leave. “Deferred Management Fees” or “Departure Fees” are based on complex formulas and can cost you a third of the re-sale price of your unit. In addition, operators generally require the out-going resident to pay for the refurbishment of the dwelling prior to sale, and this may cost you tens of thousands of dollars. Plus, you may be liable for the normal ongoing fees for the entire time your unit is vacant.

Be aware of how your prospective contract deals with capital gains and losses. Most villages require the resident to make up any shortfall between their purchase price and the re-sale value. However, many do not allow the resident to share in capital gain profits, with the operator taking the entire increase.

Be Informed

These are just some of the contractual issues which purchasers of retirement homes should consider. A number of government agencies and consumer bodies provide general information that may assist you in making your decisions. However, it’s always wise to obtain professional legal advice from a lawyer familiar with retirement community contracts before signing something you might regret.

To speak with our experienced ElderCare Legal team, call  9870 9870 or email office@hutchinsonlegal.com.au

« Back to news

Meet our lawyers

Dania Foo

Telephone (+61 3) 9870 9870
Fax (+61 3) 9870 5704
Email Dania Foo