How to buy a unit in a retirement village

Introduction

Buying a unit in a retirement village is significantly different from buying a freehold home, and there are a number of specific questions you will need to consider. As well as finding out as much as you can about the village and its reputation from its staff and residents, you will also need to consider the type of ownership it is offering, which may be, for example, an occupation licence or a unit title (see below for the different types of ownership).

Choosing a retirement village

In choosing a village you should start by visiting the villages in your area. As well as meeting with the managers and nursing staff, talk with as many of the residents as possible about how they find the staff and facilities, the standard of care, the standard of maintenance of the units and common facilities, and other issues.

As well as generally feeling comfortable with the village and its facilities, you should make sure you address a number of important specific questions:

• the cost of care, and when any fees for the cost of care are deducted
• any other costs involved in the ongoing use of facilities
• the financial stability and reputation of the village owner/operator
• any potential developments for the village
• how much you will receive when the unit is "resold", and when you will be paid

You should obtain the documents for the legal ownership of any of the properties in which you are interested. Usually the main document will be an occupation licence (see below).

The Consumers’ Institute provides a comprehensive checklist for choosing a retirement village unit on its website at www.consumer.org.nz/other/retirecheck.html or check the Ministry of Economic Development's companies office online.

The Retirement Villages Act 2003 introduces new rights and protections for residents, and intending residents, of retirement villages. It also introduces new responsibilities for operators of retirement village so that residents have a clear understanding of the financial and other obligations of being a resident, and to ensure and residents receive what they were promised or are entitled to. Before intending residents agree to enter into any agreement to occupy a unit in a retirement village, the person making the offer will need to provide the intending resident with an Occupation Rights Agreement and this must include a cooling-off clause.

From 1 May 2007 you are now able to search Retirement Villages registered under the Retirement Villages Act 2003 online at www.retirementvillages.govt.nz.

Types of ownership

There are a number of different types of ownership agreements for retirement village units, and you will need to consider the advantages and disadvantages of each form. The main forms of ownership agreement include the following:

• Unit title for life – A title for life to the unit will be issued in the name of the resident for the resident’s life or until he or she terminates it at some earlier date. This means that the title belongs to the resident: the rest home owner is unable to deal with it. For an explanation of unit titles, see How to: unit title ownership of apartments and other properties.
• Mortgage back in favour of the resident – In some instances the resident makes an occupation loan to the retirement village owner. The resident’s loan is secured by a registered first and only charge against the title to the resident’s unit.
• Prospectus regime with a licence to occupy – In the above two cases the resident deals with the rest home owner directly; but under the most common form of "ownership", an occupation licence, the resident pays a fee to a statutory supervisor, who then passes the proceeds on to the retirement village owner. The statutory supervisor is appointed as part of the issue of a prospectus by the owner. The statutory supervisor takes a first charge over the village units and receives financial reports from the owner and audited reports about the financial aspects of the business. So under this type of agreement you deal with the owner of the retirement village only through the statutory supervisor, whose role is to protest the interests of you and the other residents.

Cautionary notes

• You will need to be aware that if you decide to leave the village or if you die, in some situations the funds may not be repaid to you or your estate until the unit is sold to another new resident.
• As there are so many different types of ownership agreement, it is important that you seek legal advice before entering into any agreement. Your lawyer will ensure that your investment is secure and that, when you leave, the money is paid back within a reasonable time.