Types of Retirement Village Contracts

A retirement village contract sets out a resident’s obligations and their entitlement to reside in a retirement village. Retirement village contracts are often voluminous due to the onus on villages to satisfy the Act’s disclosure requirements and regulatory provisions.

Some retirement village contracts create an equitable interest in the village and some create a registered interest over the village land. All retirement village contracts are regulated under the Retirement Villages Act 1999 (NSW) (the ‘Act’).

A retirement village contract may be in the form of one or more of the following arrangements, and  may include the provisions set out below:

Loan and licence arrangements

This type of contract requires the resident to pay an Ingoing Contribution in the form of an interest free loan. Often, a non-refundable deposit is payable and is deemed part of the loan.

An entitlement for the resident to reside at the village and the termination provisions connected to that residency entitlement are expressed in the contract.

Alternatively, where the loan agreement is in combination with another type of retirement village contract, the loan agreement should refer to that other document (such as a Lease or Licence) confirming the entitlement to reside.

The village operator must maintain the capital items in the premises that do not belong to the resident.

Recurrent charges are payable on a fortnightly or monthly basis.

On termination of the agreement, the village operator must give the resident a refund in accordance with the loan agreement and the Act. A departure fee may be deducted from the refund.

Leasehold arrangements

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

The lease is registered on the title of the Village property. The Act provides that the resident is 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 gain’.

On the sale of the leasehold interest, depending on the terms of the lease, the resident may be entitled to the whole of (or a share in) the capital gain and/or be liable for the whole of (or a share of) the capital loss.

It is usually a condition in the lease that the resident pay Recurrent Charges monthly or quarterly. The village operator must maintain the capital items in the premises that do not belong to the resident.

On permanent vacation of the premises, departure fees together with any outstanding recurrent charges and sale costs (such as legal costs and/or agents commission) permissible under the Act are payable.

On termination, the village operator may require the resident to surrender the lease as a condition of paying the balance monies payable to the resident under the lease and the Act.

Strata and community schemes

Usually, a resident would purchase the premises by entering into a Contract for Sale of Land with the existing registered proprietor, which 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 itself is not considered an ‘Ingoing Contribution’. However, an Ingoing Contribution may be defined in a Service Contract as the price payable under the Contract.

On settlement of the Contract, the resident becomes the registered proprietor of the Lot within the strata or community scheme for the premises. As a registered proprietor, the resident will be deemed a member of the owners’ corporation or community association and liable to pay strata/community levies for the scheme.

The main differences between a strata retirement village and a non-strata village are:

• in a strata retirement village, the owners corporation (as opposed to the Village operator) is responsible for maintenance of common property; and
• individual residents are responsible for the capital items they own in their unit.

Residents should familiarise them selves with their rights and obligations under the Strata Schemes Management Act 1996 (NSW) or the Community Land Management Act 1989 (NSW) which operate alongside the Retirement Villages Act 1999 (NSW).

The resident and the village operator are often required to enter into a service contract. The service contract may define the Ingoing Contribution, require the resident to pay departure fees, and set out whether capital gain/loss is to be shared with the operator.

The village operator and the owners’ corporation or community association may already have an agreement requiring the village operator to assist the owners’ corporation or community association with the administration and management of the common property.

Rental arrangements

This type of arrangement often involves a residential tenancy agreement where the resident pays rent in the same way as they would under a standard tenancy arrangement.

There are no Ingoing Contributions or Departure Fees. However, the resident may have to pay a bond or other costs associated with the tenancy.

If a term of the agreement excludes the applicability of the retirement village laws, the agreement will be regulated by the Residential Tenancies Act 2010 (NSW).

Company title schemes

Company Title Schemes generally require a resident to purchase shares in a company which is the registered proprietor of the village property.

In accordance with the constitution of the company, the shares give a resident the right to occupy a specific premises allocated to the share numbers purchased by the resident. A resident must usually seek approval from the company’s Board of Directors to buy the shares and comply with the company’s constitution.

The purchase price payable for the shares is not considered an Ingoing Contribution for the purposes of the Act. However, an Ingoing Contribution may be defined as being the price of the shares in a Service Contract.

The company may require the resident to:

• enter into a services contract in which departure fees may be payable; and
• pay the company a bond which is refundable on the sale of the shares.

Take aways

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

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