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Retirement Village Living

New Zealand’s ageing population has led to a proliferation of retirement villages, and the trend is only upwards. They’re a very convenient way of life for retired people with a vast range of amenities usually available.

But there are pitfalls on the legal and economic side of the ledger. Consequently, prospective owners need to consider their financial and other needs before signing up for a retirement village.

 The most important issue is ownership.


Most villages do not allow ownership of the property. This means there are restrictions around the sale and renting of it, which is usually prohibited, and any capital gain on the re-sale is captured by the village. Instead, villages operate a “licence to occupy” arrangement, which gives the resident the right to live in a unit for their lifetime, and indeed for the lifetime of the survivor (if the owners are a couple) upon payment of a monthly or weekly fee, which is generally quite affordable. This fee is usually fixed for the term of the agreement, or in some cases increases are linked to inflation increases. Some agreements permit villages to increase the fee upon adequate notice. If you are unable to pay these fees, some villages will let the fees accumulate until the unit is sold.

In addition to the monthly fee, residents are also responsible for payment of telephone, power, internet and other such utilities.

Prospective owners will sign an application and then pay a nominal deposit. There is a 15 working-day cooling off period in the legislation, which allows for owners to safely sign the full agreement, yet decide it’s not for them with the ability to cancel it within that 15 working days and obtain a refund of any money paid.

There are statutory obligations on village operators to provide prospective owners with a disclosure statement setting out the rights and obligations of owners. This disclosure document also describes the financial matters, and provides details of village rules, policies and the like.

Lawyers have a legal duty to explain the detail of the agreement to owners, and they are further required to sign a certificate to confirm that they have explained the nature and effect of the documents to the owner, and more importantly, that the owner understands them.

One of the pivotal aspects of any occupation right agreement is the application of a ‘deferred management fee’ payable upon the resident exiting the village.

Village operators don’t make their money from the monthly fees paid by residents: These cover the day-to-day costs of operation, and little else. The management fee is usually 20%–30% of the original purchase price, and is applied on a pro rata basis of, say, 10% per year over the first two or three years, with a cap of the 20-30%. When the unit is sold, the village will pay to the owners, or their estate, the original purchase price, less the management fee, and less any fees and other costs of repair to, or reinstatement of, the unit (but not fair wear and tear). This means that when you leave the retirement village, you will almost always receive a financial payment that is significantly less than the price that was paid at entry. This is usually well explained by village operators to prospective owners at the outset, but is worth repeating.

As explained, on termination the deferred management fee and any other costs are deducted from the repayment sum. But the monthly fees can continue until a new owner moves in. This often causes concern from surviving family members, and most agreements limit this period to six months.

In the event of a transfer from one unit to another in the same village, the village can charge a transfer fee.

Retirement villages are increasingly popular, if not a little controversial. They can be a comfortable retirement living option for many people. However, it is generally beneficial for families to be aware of the decision by their parents and/or grandparents to commit to this living option, due to both the legal and economic ramifications.

For advice around buying into a retirement village, contact the Property Team.

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