Buying into a retirement village is a decision that many people consider as part of their retirement planning. Like all decisions of this size, it’s one that requires careful consideration.

In the majority of situations when moving into a Village, it will involve signing an Occupation Right Agreement (ORA) with the retirement village. An ORA sets out the terms on which you can live in the village and the rights and obligations of both you and the village.

The most important thing you need to realise about buying an Occupation Right is that, unlike a freehold property, you will not “own” the unit or apartment. Instead, you simply have a contractual right to live there.

This means you must pay the retirement village a weekly or monthly fee, you will not receive any capital gain, and the amount you receive back upon termination will generally reduce by up to 30%. It also means that in most cases you cannot mortgage the property or transfer or sell it as you may be able to with a freehold property.

The terms of an ORA vary between villages, but usually contain the following:

Cooling off period: You have 15 working days after signing the ORA to cancel if you change your mind. You should receive a refund of all payments made

Joint occupation: If you are buying the Occupation Right with your partner or spouse, the terms in the ORA usually apply to both of you jointly. You will both have the right to occupy the home. If one of you dies, the interest of that person automatically transfers to the other person. If you currently own a home in equal or unequal shares, or you would like to leave your interest in the retirement village home to somebody other than your spouse, you should raise this with your lawyer before signing the ORA.

Village Fees: Most villages have a weekly or monthly fee which covers basic outgoings at the village. The fee may be fixed for your lifetime, or subject to change. Often, the villages offer additional services which can be bought at an additional cost.

Termination and exit payments: You can terminate an ORA at any time on giving the required notice. There are limited grounds on which the retirement village can terminate an ORA, such as where you can no longer live safely in the village, or if you breach the terms of the ORA. The agreement will automatically terminate when you (and your spouse or partner if you are purchasing together) die.

On termination, most villages deduct a fee that is equivalent to around 30% of your entry payment (or 10% for each year you have lived in the village if it is less than 3 years). In addition, you (or your estate) may not receive your exit payment until the village has sold your unit to someone else. For this reason, entry into an ORA is usually a commitment to reside in the village for the rest of your life. You should think carefully about your personal and family circumstances when deciding whether this is right for you, and make sure you choose a village that will meet your needs. If you change your mind once the cooling off period ends, you may find that you have insufficient funds to buy elsewhere. Some provide a 90-day grace period during which you can terminate the ORA without penalty.

Wills and EPAs: Before you can live in a retirement village, you will also need to ensure you have a current and valid Will and Enduring Powers of Attorney for both your property and personal care and welfare in place.

Occupation Right Agreements require you to obtain the advice of a lawyer before signing. If you are considering buying a retirement village unit or apartment, your lawyer will provide the further advice required.

Article by Rebecca Irvine

Holland Beckett Law

Also produced in FMT First News December 21 Newsletter

Rebecca is a Senior Associate for Holland Beckett Law. Holland Beckett is full service law firm with lawyers specialising in property, corporate and financial transactions, estate planning and administration, environmental and resource management, employment, dispute resolution, health & safety, family and Maori law matters.

This article is general in nature and not designed to provide legal or other advice and independent advice is always recommended.