Plain English Guide to Life in a Retirement Village – Company Law / Commercial Law

As increasing numbers of Australians move into retirement villages, or the popular Over 55 Lifestyle Estates, it is important to see the issues that can arise and the complexities that are often involved in this type of move.

This plain English guide is designed to help you decipher the contractual obligations of moving into a retirement village. Given the sometimes complex nature of these contracts, it is always advisable to seek professional legal advice before entering into any agreements or signing anything.

Types of retirement village contracts

The right to reside in a retirement village and the obligations of a resident are expressed in a retirement village contract.

There are different retirement village contract structures. Some contracts create a registered interest in village land, while others create an equitable interest in the village. All retirement village contracts are governed by the Retirement Villages (NSW) Act 1999 (as amended) (the “Act”).

A retirement village contract can take the form of one or a combination of the following provisions. Generally, these arrangements may include certain provisions which are set out below:

a) Loan and license agreements

This type of contract requires an incoming contribution to be paid by the resident in the form of an interest-free loan. Often, by definition in the contract, a non-refundable deposit is payable and is deemed to form part of the loan.

The contract expresses the right for the resident to reside in the village as well as the termination provisions linked to this right of residence. Alternatively, where the loan agreement is combined with another type of retirement village contract, the loan agreement should reference that other document (such as a license or lease) confirming the right to reside.

The Village Operator must maintain capital equipment in premises not owned by the Resident.

Recurring charges are payable on a fortnightly or monthly basis.

Upon termination of the contract, the Village Operator must provide the resident with a monetary refund in accordance with the loan contract and the law. A departure fee may be deducted from this refund.

(b) Lease agreements

If a Village Operator owns residential premises in the Village, they may require a resident to enter into a lease.

The lease is registered on the title deed of the Village. According to the law, the resident would be considered a registered interest holder if the retirement village contract is “in the form of a registered long-term lease that includes a provision that entitles the person to at least 50 % of any capital appreciation”. .

Depending on the terms of the lease, the resident may be entitled to all (or part of) the capital gain and/or be liable for all (or part of) the capital loss on the sale of the leasehold interest.

As a condition in the lease, the resident is generally required to make payment of recurring charges on a monthly or quarterly basis. The Village Operator must maintain capital equipment in premises not owned by the Resident.

A severance charge would apply upon permanent release of premises, along with any recurring charges and unpaid sales charges (including but not limited to legal fees and/or agents’ commission) that are authorized by law.

Upon termination, the Village Operator may require termination of the Lease as a condition of payment of the balance of monies payable to the Resident in accordance with the Lease and the Act.

(c) Strata and community plans

Usually a resident purchases the premises by entering into a land sale agreement with the existing registered owner, who, if the premises have never been lived in before, may be the village operator or otherwise an outgoing resident/executor.

For the purposes of the Act, the purchase price under the contract himself is not considered an “incoming contribution”. However, an inbound contribution may be defined in a service contract (see below) as the price payable under the contract.

Upon settlement of the contract, the resident will become the registered owner of the lot under the strata or community premises regime. As a registered owner, the resident will be considered a member of the owners’ corporation or community association and responsible for payment of relevant stratum/community dues for the scheme.

The main difference between a strata retirement village and a non-strata village is that, in a strata retirement village, the owners’ company is responsible for maintaining the commons (as opposed to the village operator) and individual residents are responsible for capital items. they have in their unit. In addition, residents should be aware of their rights and obligations under the Strata Schemes Management Act 1996 or the Community Land Management Act (NSW) 1989 which operate alongside the Retirement Villages Act (NSW) 1999.

A service contract must generally be concluded between the resident and the operator of the village. The service contract can define what the incoming contribution isrequire the resident to pay an origination fee and also indicate whether the capital gain/loss should be shared with the operator.

In addition, the village operator and the owners’ corporation or community association may already have an agreement that obligates the village operator to assist the owners’ corporation or community association in managing and administering the common property.

(d) Rental Terms

Typically, this type of arrangement involves a residential tenancy agreement where you would pay rent the same way you would under a standard tenancy agreement.

With this type of arrangement, there are no incoming contributions or outgoing fees. However, you may be required to pay a deposit or other fees associated with the rental.

If the agreement contains a clause excluding the applicability of retirement village laws, the agreement will be covered by the Residential Tenancies Act (NSW) 2010.

(e) Corporate Title Plans

Company title schemes generally require a resident to purchase shares of the company and the company is the registered owner of the village property.

In accordance with the company’s memorandum of association, the shares give a resident the right to occupy a specific premises allocated to the share numbers purchased by the resident. A resident is generally required to seek the approval of the company’s board of directors to purchase the shares and must comply with the company’s constitution.

Similarly for Strata and/or Community Retirement Villages, the purchase price payable for the shares themselves is not considered an inbound contribution for the purposes of the law. However, an Incoming Contribution may be defined as the price of shares in a Service Agreement (see below).

The company may require the resident to enter into a services agreement in which a departure fee may become payable and the resident may also be required to post a deposit to the company which is refundable upon the sale of the shares.

In summary

Retirement village contracts are often lengthy, but this is because villages are responsible for meeting certain disclosure requirements and regulatory provisions under the law.

Before entering into a retirement village contract, a resident should seek independent legal advice to ensure that they fully understand their rights, financial commitments and other obligations under the retirement village contract and the law.

How Coleman Greig can help you

Over the years, Coleman Greig’s real estate team has provided many clients with advice regarding retirement village contracts.

We can help you with:

  • Drafting of contracts

  • Review of contracts

  • Provide advice in plain English on the terms and their implications

  • Trading terms and conditions

  • Settlement Process Management

  • Estate planning

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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