Under the Retirement Villages Act 2003, before entering into a licence you must take independent legal advice, and your solicitor will advise you on the conditions and terms of the agreement to ensure that you fully understand and agree with them.
Here are some of the key matters that should be considered.
Generally, when you purchase a licence for a unit in a retirement village, the village owners will have you sign an application form.
This form will record the details of the unit you are purchasing, fees payable and other terms and conditions of the application, such as your right to cancel and solicitor's approval.
The application can also include any special conditions you want to include, such as a requirement that you sell your current property first.
Retirement villages typically charge a weekly "service" fee to cover such things as a contribution for maintenance of the grounds, window cleaning, electricity, council rates and building insurance.
Additional costs associated with facilities such as internet, Sky television, telephone connections and home contents insurance are the responsibility of the licence holder.
Be mindful that if you have a beloved pet, you will generally need the prior permission of the village owners to have the pet live with you (although the village owners reserve their right to withdraw their consent if there are any issues).
When the time comes to sell the licence, unlike a residential property that you own (where you would have control over the sale process), the sale process is managed by the owners of the retirement village.
The sale process varies between villages. There are financial repercussions on the sale of a licence.
These typically include that you (or your estate) won't receive any capital gains on the sale, and will need to allow for a deferred management fee to be deducted.
It is important that you understand the nature and formula to be applied relating to the deduction of a deferred management fee.
Your lawyer will explain this to you, but commonly, retirement villages charge a percentage of the initial licence fee.
This percentage varies from village to village, and the maximum percentage that can be deducted will be set out in each licence agreement.
Typically, the percentage for the management fee will steadily increase for every year you have occupied the property, and will then be capped after a set number of years (generally four or five years).
Therefore, the actual deduction amount will depend upon how long you have held the licence for (ie. occupied the property).
For instance, if you lived in your unit for two years then the management fee that will be deducted is likely to be less than if you lived in your unit for four years.
However, once you have reached the maximum number of years/percentage, the deducted fee will stay the same irrespective of how much longer you stay in the property.
Occupation Licence Agreements offer an opportunity to enjoy your retirement with peace of mind and companionship.
However, it is always important to explore and understand fully the financial commitment being made at the outset and ensure there are no surprises for you, or your family, while you enjoy the property or after you have left.
