Everything you’ve wanted to know about living in a retirement village or aged care facility but were too afraid to ask. Danielle Lim, of DSL Law, answers the curly questions.
Legally, what is the difference between a retirement village and an aged care facility?
The legal differences are all about regulation and what we call ‘tenure’.
Contrary to popular opinion, you cannot identify a retirement village or an aged care facility just by looking at it. When you look at a retirement village, the units look exactly the same as any other unit you’d see in the village but are vastly different in the way they are regulated.
From a regulation perspective, retirement villages are separately governed by each state. That means the rules vary depending on where you are in Australia. At a very high level, if an older person signs a contract that gives them a right to reside in their unit and a right to receive certain facilities, you have typically met the statutory definition of a retirement village.
Aged care facilities are designed for people requiring very high levels of care. Funding, care and accommodation are regulated by very complex rules at a Federal Government level. Residents typically receive the right to a ‘bed’ and also the right to certain care services, depending on their needs.
What is the difference in buying a unit or a villa in a retirement village compared to buying something freehold down the street?
Most people have bought and sold houses several times during their lives, so they think they know what they’re getting into. But villages are different. In a retirement village what you’re actually buying is the right to reside in your unit. That might be in the form of a licence or a lease. It could also be shares in a company, and in some cases residents do purchase a freehold unit. Freehold retirement village units are subject to lots of restrictions and are becoming less common. One of the practical differences relates to the process of selling. Often a retirement village operator will be more instrumental in the selling process, and there is also generally agreement about how the next purchase price is shared between the resident and the operator.
Therefore in cases where the building is owned by the retirement village, you’re paying for the right to live in that place for a certain period of time, is that correct?
Yes. The period of time is very long so residents have security. Residents typically pay what is known as an ‘ingoing contribution’ when they enter – that’s a loan and it comes from the resident to the operator. When you leave you get that loan back and you might pay some fees, like an exit fee. The exit fee generally covers the management costs for the period of time you lived there. The unit looks, feels and smells exactly like freehold in terms of the way you use your home, but it’s just different in terms of the ‘tenure’ and what is recorded on title.
What’s the difference between a freehold home and a unit in a retirement community or aged care facility in terms of what you can expect to pay and the ongoing costs?
For people who are looking to purchase in a retirement village I often break it down chronologically. It’s important to understand the fees that you pay when you move in, while you’re living there and when you leave. When you purchase a freehold home, you pay your purchase price and some transfer duty. When you purchase a retirement village unit there is no duty, and you pay an ingoing contribution. When you live in a retirement village, you pay the costs of the upkeep and operation of the village on a ‘cost recovery’ basis.
Operators don’t make a dollar of profit from these fees. When you live in a freehold unit in a body corporate, you pay body corporate levies (which include profit for the body corporate manager). Then, when you leave a retirement village, you will typically pay an exit fee. When you leave a freehold home you don’t pay fees like that but may incur capital gains tax.
When you mention the upkeep of things in the village, you’re talking about facilities such as community centres, pools, medical centres and staff on call, is that correct?
Yes [but] it can really vary from village to village. Some villages might have the bare basics such as some gardening, an emergency call button and maybe some cleaning. Other villages may have everything included like a bowling green, restaurants, piano bars, wine bars and wellness services. When somebody is looking to move into a village, it’s important they have a list for themselves of what is really important and what would make life really great for them, and then see if they can get as many ticks on their list as possible.
Just on the retirement villages, you pay the amount of money to go in but what do you get back when you leave?
It depends on the contract you sign, but it’s a loan. So, if you pay $300,000, you get your $300,000 back. If you’ve agreed to pay the operator some fees, you will need to pay the operator these at the same time as you are repaid your $300,000.
So, the difference is, if you have a freehold house you pay rates, maintenance, upkeep etc. On top of that you may also have capital gains involved, depending on whether it’s your family home?
Exactly. In a freehold house you get your capital gain and you bear your capital loss. In a retirement village whether or not you get capital gain or loss depends on the contract itself. I am seeing residents starting to ask for more certainty. This has resulted in more contracts coming through where residents aren’t asked to bear capital loss, but they also don’t get to share in capital gain. It is absolutely dependent on the individual contract.
Moving into a retirement village isn’t just about signing a contract to get in the door. It’s really about your life and your quality of life. The questions you should be asking your potential provider are things that are really important to you such as ‘Can I have pets?’, ’Can I have visitors?’ ‘What are the finance arrangements?’.
Adapted from part of a recorded interview between 2GB host John Stanley and Danielle Lim which aired January 30, 2020.
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