If there's an "investment" that's guaranteed to eat capital, it's retirement villages. These resort-like gated communities for older people are popping up all over the country.
They're ideal for some. The facilities are often impressive, the neighbours are at a similar stage in life, it's safe and there is help on hand if you need it.
Another benefit, says lawyer Tony Fortune, a Fortune Manning partner, is that couples can stay close together if one needs more care than the other - providing they have chosen a village that also offers rest home facilities, a hospital and possibly dementia care.
Both retirees and their families need to know a bit about how retirement villages work before signing on the dotted line. In most cases residents buy a licence to occupy a villa or apartment. Most cost between $200,000 and $500,000.
A licence to occupy is not the same as buying a freehold retirement villa. Residents only own the right to occupy the unit, usually for the rest of their lives or until they need to move elsewhere for more care.
They get no capital gain on their unit. When they move out they are paid out according to a formula, which is usually purchase price less a "facilities fee" that might be 25-30 per cent of their original purchase price.
Bill Atkinson, the chairman of Grey Power's retirement villages portfolio, bought a lease on an apartment for $215,000 13 years ago. If someone such as him had to move out they would usually get the purchase price less the facilities fee. Yet an identical next-door apartment lease in his village sold for $475,000.
The capital cost of living in that unit if the facilities fee was 30 per cent would come to about $25,000 a year.
Older people don't just pay capital to live in these villages. They also pay weekly or monthly service fees, which cover village running costs. Consumer NZ says those fees average $124, or more than $6400 a year.
I've heard the retirement village business described as "farming the elderly". The average tenure of retirement village villas is seven to eight years, according to Consumer. For apartments, it's five years. The quicker the turnover the more money the village makes. Great if you've got shares in Metlifecare or Ryman Healthcare.
Having said that, Atkinson and his wife, Chris, have lived in a retirement village for 13 years and report being very happy with the lifestyle - even if he does spend his spare time keeping the industry on its toes.
In the past residents often failed to fully understand the contract until after they'd moved in. This has improved thanks to the Retirement Villages Act 2003 (RVA), which dealt with several problems in the industry.
Thanks to the RVA incoming residents must have a certificate signed by their lawyer saying they understand the terms of the licence, says John Collyns, executive director of the Retirement Villages Association.
This requirement has certainly reduced the number of complaints by residents, says Fortune. "The documentation is much more standard [now]. There is a requirement to have disclosure and most of the licences are written in plain English."
Ann Martin, chief executive of Age Concern, warns that not just any lawyer will do. "Seek advice from a lawyer who knows how retirement villages work. This is a specialised area."
She also recommends that potential buyers don't sign until they've read the Retirement Villages Code of Practice, which prevails over any less favourable clauses in residents' contracts, and the Code of Resident's Rights.
A report in 2011 by the then Retirement Commissioner found there were still residents who weren't aware of the RVA. In the report the commissioner noted many common resident complaints. They included:
• Fee increases beyond agreed constraints.
• Reductions in the range of services and amenities covered by the fees and subsequent application of additional charges.
• Reductions in the quality of amenity through reduced maintenance or under-investment in repairs, lack of clarity about refurbishment and previously undisclosed changes in the built environment such as more higher-dependency care facilities, or the addition of new units and/or apartments that affect communal space or individual units' exposure to noise, sun or light.
• Failure to provide amenities indicated in staged development plans.
• Sale of occupation rights being inappropriately managed.
• Changes in operation, management and ownership without consultation.
• Anxieties exacerbated by perceived lack of financial transparency and the diversity of contracts within villages.
The service fee complaint is one that Fortune warns potential residents about.
"One village operator guarantees that the monthly outgoings payment will not increase during the term," he says.
Sometimes increases are pegged to the CPI or to New Zealand Superannuation increases.
The Christchurch earthquakes highlighted another potential problem for retirement village residents.
Some villas in that city became unliveable thanks to the quakes, but the residents were only entitled to their purchase price less facilities fee, which was insufficient to buy elsewhere.
From October residents will be entitled to their entire purchase price back if a village becomes uninhabitable. But even that won't be enough to buy a new unit, says Atkinson.
Some of the larger chains of villages offer replacement units, which is a better solution for many residents.
Another big risk, says Atkinson, is financial collapse of the operator. Residents would not be guaranteed their money back and could be left homeless and penniless.
Only a handful of complaints have reached the RVA's disputes panel stage.
In part, says Atkinson, this is because residents can't afford to pay for lawyers to represent them and the panel can award costs against them if they lose. He believes it would be fairer if there was a free service with no lawyers involved such as provided by the Tenancy Tribunal to tenants and landlords.
Complaints to residents' committees, village managers, Grey Power, Age Concern and others are quite common, he says.
Metlifecare Kapiti resident Ian Brown had his complaint to the panel upheld when Metlifecare announced in its Village Voice newsletter to residents that it would change the way it charged residents for refurbishments.
One common complaint about retirement villages is the time they take to resell units when someone moves on. Residents or their beneficiaries must continue to pay the weekly fees even if the unit is empty.
Residents Joseph and Christina Knight complained that village owners had taken two years to sell Unit 11, Pukeko Place, Perrinpark, Hamilton. Panel chair David Carden questioned whether the Perry Foundation was asking too much for the Knights' unit, but noted that that wasn't the basis of the complaint.
Many licences to occupy require the resident to pay full service fees for the first six months that their unit is on the market and then half the rate thereafter.
One of Fortune's clients died waiting for another village to sell her unit. She had moved into hospital care, but never received the capital in her lifetime. In cases such as this the former resident often stops paying the service fees, which continue to accrue (sometimes with interest added) and are paid out of the eventual sale proceeds, says Fortune.
Residents of Oceania's Hutt Gables Retirement Village in Upper Hutt complained to the panel about six years after purchase that the services and facilities they were promised at the time they bought their units had not been provided.
Those services included onsite help, back-up services (meals and help for disabled residents), a library, hairdresser, gym, spa and lounge. "These (or some of them) were apparently promised prior to the sale of the units but have not been provided because the main building (from which services and facilities would come) has yet to be constructed," said panel chair Susan Robson.
Oceania, which failed in its argument that the panel didn't have jurisdiction over the matter, eventually resolved the case by building a community centre with specified facilities as promised in the original sale and purchase agreements.
Fortune admits, when asked, that he sometimes suggests to clients that they choose a different retirement village from the one they're contemplating.