A quick look at retirement villages
There are various arrangements under which retirement villages operate – the three most common arrangements are:
- villages where the right to reside is secured by a registered lease (commonly known as leasehold villages)
- villages where the right to reside is secured under a licence and loan agreement (commonly known as loan / licence villages)
- villages where the resident holds the freehold interest in the unit (commonly known as freehold villages)
It is important that person thinking about living in a retirement village understand differences between the above arrangements.
Retirement village – Leasehold
Right to reside
The most frequently found operating model of retirement villages is under a leasehold arrangement. Here the resident has an exclusive right to reside in an accommodation unit under a lease with the scheme operator. The resident pays an ingoing contribution, which is in effect an interest free loan, to the operator for the right to occupy.
The lease is registered in the Queensland Land Registry. The prospective resident pays all costs associated with the preparation including those costs incurred by the lessor and the government charges for registration of the lease.
Prospective residents should consider that their lease with the scheme operator will end when the leaseholder dies or, in the case of a more than one resident when the last survivor dies (these leases may also state they expire in 49 or 99 years).
A lease for a unit in a retirement village is not a transferable asset. In addition, it cannot be transmitted to beneficiaries under the terms of a will. That is, it is not able to be transferred to another person or bequeathed to someone in a residents will. Only the residual value of the lease (after the deduction of exit fees, legal fees and reinstatement costs are met) forms part of a deceased person’s estate.
All land on which the village is situated is owned by the scheme operator. This includes all common areas and the land on which a residents unit is constructed, and the front and back yard. Ownership of the land by the scheme operator also includes all fixed structures including communal buildings and residents accommodation units.
The registered lease granted to residents provides each resident a high security of tenure but only insofar as their accommodation unit. Anything not included in their lease within the village can, and often is, changed without a breach of their lease having occurred and therefor without the possibility of redress by the resident.
Right to use facilities
Under their individual leases each resident will be given the right to use the scheme operator provided communal facilities which can include, a community building, a swimming pool, a bowling green, a library, tennis courts, the village bus and so on.
General service fees
Residents are obliged under their contracts to pay a monthly (sometimes fortnightly) general services fee which typically covers the running cost of the village on a cost recovery basis. In general, residents will find that their monthly fees are lower that they would have to pay for their own accommodation in a non-retirement village environment when considering the communal facilities available to them.
Maintenance reserve contributions
In addition, each resident pays into a maintenance reserve fund which maintains and repairs capital items within the village.
Rules and regulations
All villages have rules and regulations which both restrict the behaviour of residents and equally protect them from the behaviour of other residents. For example, speed limits on village roads, the behaviour of visitors to other residents in their units with special reference to children.
The length of time that a visitor may stay with a resident is usually stated in their contract to reside. In addition, the conduct of those visitors whilst within the village is the responsibility of the resident they are visiting
Resident must be in residence
The presence within a retirement village unit or the use of communal facilities by a visitor is not usually permitted unless at least one of the registered leaseholders is present. This is to ensure that the unit doesn’t get used as a holiday let.
Capital items, fixtures and fittings of units
The maintenance repair and replacement of capital items and fixtures and fittings of the accommodation unit may be the responsibility of the resident under their contract.
Exiting – reinstatement
When a resident (or the surviving resident) leaves their unit, the scheme operator collects (deducts) from the resident’s exit entitlement, the cost of reinstating the unit to the condition it was in when the resident moved in. This is frequently the cause of disagreement and ARQRV members have our experience and knowledge on which to rely to ensure that this is fairly executed.
Exiting – deferred management fee
Under a resident’s contract the scheme operator is invariably entitled to deduct a deferred management fee from the resident’s exit entitlements. These fees vary but can be as high as 40% of the ingoing contribution paid by the new resident.
Exiting – Waiting for payout
Under legislation a scheme operator must pay out a departed (in both senses of the word) resident their exit entitlement no later than 18 months after the resident has given the operator vacant possession of their unit. For residents that have already vacated this 18 months starts from the date the revised law came into effect i.e. 10 November 2017.
Retirement village – Loan / licence
Very similar to the leasehold arrangement except that, under this arrangement, the resident makes a cash interest free loan to the operator in exchange for the right to reside. The resident’s right to reside and financial interest are not registered with the Queensland Land Registry.
Retirement village – Freehold/Strata Title
Freehold villages differ in that the unit and land it stands upon are wholly owned by the resident. The village operates under the Retirement Villages Act 1999 (current as of 10 November 2017) and also the Body Corporate & Community Management Act (Standard Module) 2008 (current as of 3 July 2017). If there should be any inconsistency between the Retirement Villages Act and the Body Corporate & Community Management Act in relation to a person’s rights and obligations under a retirement village scheme, the Retirement Villages Act prevails to the extent of the inconsistency.
The majority of villages will be under the Body Corporate Standard Format plan, previously known as a ‘group title plan’, which defines land horizontally. Multi storey unit buildings and in some cases townhouses would usually be defined under the Body Corporate Building Format plan.
There may be other slightly different models to the above but we are concerned here only with the two majority models.
In a freehold village all common property is owned by the lot owners/residents and all contribute via the Body Corporate Sinking Fund and Administrative Fund. Residents must also pay into the General Service Fund, Maintenance Reserve Fund and residents with pre 2000 contracts will pay into the Capital Replacement Fund (CRF). Apart from residents with pre 2000 contracts, the CRF is Operator funded.
The repairs and replacement of all items within the boundary of the Lot are the responsibility of the owner/resident, including all capital items within the unit. Examples – fences, doors, windows, infrastructure (pipes etc.,) and fixtures and fittings within the unit as per the Standard Format Plan. If the roof of the building covers a single unit or garage, it is the responsibility of the owner/resident. However, if the roof is continuous, covering more than one unit/garage, then the body corporate is responsible for the maintenance, repairs and replacement of same.
No permission is needed for alterations made to the inside of your unit but outside alterations usually need body corporate permission.
The Building Format Plan differs slightly regarding repairs and replacements because these are usually high rise building with common walls, one roof etc.,
The lists of who is responsible for what is too extensive to reprint here. If you need further information and are a member of ARQRV they can help or check out the Queensland Government website for Standard plan format maintenance or the Building plan format, whichever is applicable to your village.
Exiting the village
Any reinstatement of the unit will be at the expense of the resident (because they own the unit and everything in it). Often Operators will try to encourage refurbishment rather than simply ‘reinstatement’, stating that the unit will be easier to sell. The decision is up to each individual, having done their ‘sums’, remembering that the Operator will take a percentage of the selling price as a deferred management fee in most cases, as per your contract.
Under the current Retirement Villages Act, 10 November 2017, a scheme operator must pay out the departed resident no later than 18 months after vacation of the unit if it has not sold.