Published by: sorted.org.nz

Moving into a retirement village can be a great option to live out your later years. But with so many different options and decisions to make both personally and financially it’s important you have all the information to make the call.

In most cases you will need to look at selling your home or using your other savings to get into a retirement village and likely have to top up your NZ Super to make the most of living there.

Buying into a retirement village is different from buying a house. Legal and financial matters are a bit more complicated with retirement villages. They’re operated in different ways, and what they offer varies. Here’s what to consider.

Are retirement villages right for you?

Retirement villages are a perfect solution for some, but they’re not for everyone. To help make your decision easier, try breaking it into three parts:

    a) Be clear about your circumstances and lifestyle preferences

    It helps to be clear about your personal and family circumstances and future lifestyle preferences. Will the retirement village suit your lifestyle needs now and in the future? What are things that matter most – great community, facilities, pet-friendly, social scene, support if your health needs change? It needs to be the right fit.

    b) Consider the costs

    Understand the costs of entry, costs while you are there, and exit costs. You must be comfortable with the financial implications of becoming a resident, depending on your unique financial position.

    Talk to your financial adviser to work out how much equity you may need to retain for the lifestyle you want on top of your fixed costs. Consider how your assets might be needed if you have a change of circumstances later and require full-time residential care.

    c) Understand how retirement villages work

    It also helps to be honest about whether you fully understand and accept the legal framework, occupancy model and key consumer protections of living in a registered retirement village.

    Tips for choosing a retirement village

    If you’ve decided you do want to live in a retirement village, you’ll need to decide on which one. The main thing is not to rush your decision. You’re more likely to choose the right retirement village if you take the time to make the choice that’s right for you:

    • Think ahead and consider what you might need in the future – will you be able to continue to live there if your health or mobility declines?
    • Imagine the ideal lifestyle in a retirement village and make a list of the things that are most important.
    • Visit different villages and find out about the lifestyles they offer, including housing options, facilities and services.
    • Talk to the residents – they know better than anyone what life is like in the village they live in.
    • Take time to read the documentation associated with buying into, living in, and leaving the village, including the disclosure statement and occupation right agreement.
    • Find out the total costs. How much is payable on entry? What are the ongoing expenses? Will you share in any capital gain when you leave? Will you have to pay for any capital loss? How will these affect your future and the choices you have?
    • Get independent legal advice from a lawyer with experience in retirement villages. Ask them about the different legal titles and what they mean.
    • Get independent financial advice from a financial planner or accountant with experience in retirement villages.
    • Involve family or friends in the decision.

    Retirement villages are just one of a number of options you have for where to live in retirement.

    Get independent legal advice before signing up to a retirement village

    Buying into a retirement village is different from buying other residential property. The financial structures and legal titles can vary from village to village, so it's important to talk to a lawyer to understand what they are and what the implications are.

    Not only is getting legal advice in your best interest, you are required to do so by the Retirement Villages Act. Find a lawyer with experience in retirement villages, who is independent of the village you're thinking about. If a lawyer doesn't have this experience, ask them for a recommendation or go to the Law Society to find a lawyer who can help.

    Common legal titles for retirement villages

    There are four basic legal titles commonly used when you buy into a retirement village: licence to occupy, unit title, cross lease, and lease for life. These agreements will generally grant you occupancy of the unit only, and unlike buying a home, you will not own the land or the unit itself.

    Your move into a retirement village may be your last residential transaction. Some villages allow you to transfer from independent units to units offering care option.

    Licence to occupy

    These are among the most common occupancy rights agreements in retirement villages. This gives you the right to live in the unit, but it doesn't mean you own it. You typically can't borrow against the value of the unit, though some villages may offer this option.

    Unit title

    In a village based on a unit title structure, you own your own unit. You also become a member of a body corporate that is responsible for the upkeep and maintenance of communal areas. Often the body corporate has a management agreement with the village manager (who is responsible for looking after the day-to-day operation of the village) to administer and look after the affairs of the body corporate.

    Cross lease

    If you have a cross lease, you share ownership of the land and its units, and grant leases to one another to live there. The leases include agreement about the length of the lease, the use of the land and the residents' rights to live there.

    Lease for life

    In this case, you have a lease for a unit or property in the village, which remains in place until you die or leave the village. Some villages also offer rental units.

    Key terms to know for retirement villages

    Disclosure documents can be challenging

    Disclosure documents provided by retirement villages are often lengthy and hard to read. In most cases there should be a ‘key terms’ disclosure summary available to help you understand the main financial terms of the disclosure statement and occupation right agreement. 

    Four key disclosure documents

    Before you sign up to become a resident in a village, you’ll need to discuss four key disclosure documents with a lawyer who is experienced with current retirement village practice. The key documents are:

    • Disclosure statement
    • Occupation right agreement
    • Code of Practice
    • Code of Residents' Rights

    Every so often Retirement Villages amend their standard occupation right agreement or disclosure statement. You may have some terms in your documents that are different from other people who have been in the village for longer.

    Retirement village costs

    There are usually significant costs when entering and leaving a village or transferring within it, as well as ongoing expenses while living there. It’s important to know what the charges cover and exactly how much they will be. These will vary from village to village, so comparing ‘deals’ will help you find out the potential upside and downsides of different offers.

    Your needs may change in the future, so keep this in mind when working out the financial details of moving to a retirement village. This financial checklist will help – it suggests questions to ask and might prompt ideas for a few others.

    You'll need to know the costs of leaving a village in case you decide you want to live elsewhere, or you want to leave money in your will. You may come out with significantly less money than when you entered the village, particularly if there are deductions from the price you originally paid for the unit and in most cases you don’t get any share in the capital gain. This may reduce your options for alternative places to live if you want to leave the village later.

    There are costs when you enter and leave a village or transfer within it, as well as ongoing expenses while you live there.

    You can find more information at www.sorted.org.nz/guides/retirement