Lawbrief July 2024

Retirement Village Occupancy Right Agreements – What to Look Out For

Whether you are considering this transition yourself or supporting a friend or family member, we know that the process of moving to a retirement village can be daunting.

To assist with this, we wanted to outline some key matters you should be aware of when considering moving to a retirement village.

A TYPICAL OCCUPANCY RIGHTS AGREEMENT

This article focuses on “occupancy rights agreements”, or the “licence to occupy”, which is the model that most retirement villages in New Zealand offer to residents.

The standard terms of an occupancy rights agreement are usually as follows:

You pay an initial advance in exchange for rights to use and enjoy the unit. You will not own the unit, and ownership rights will remain with the village. On top of the initial advance, you are likely to pay a weekly or monthly fee to the village. This fee covers village outgoings and services. In some villages this fee stays the same throughout your time in the unit, while others increase over time. When your agreement ends your initial occupancy advance will be repaid to you (less any costs payable by you), in the timeframe specified in the agreement. In most cases you will only receive your repayment when a new resident has bought the occupancy rights to your unit, and has settled this purchase. A deferred management or “exit” fee is deducted from the repayment, which is usually (but not always) up to 30% of the initial advance.

SOME KEY TERMS TO BE AWARE OF

Resale and buyback times

A commonly cited issue with occupancy rights agreements is that there can be a long wait for receiving repayment after moving out of the unit. Your village may report short wait times and high demand when you enter the agreement, but this is not guaranteed to continue.

It is therefore important to be aware of the length of time the village is able to defer your repayment under the agreement, as this varies from village to village.

Some agreements enable the village to retain your funds indefinitely, while others require the village to make repayment within a certain timeframe even if a new resident has not been found. Some villages also allow you to market and sell the occupancy rights yourself if a new resident has not been found within a certain timeframe.

In addition to the specific terms of an occupancy rights agreement, the Retirement Villages Code of Practice 2008 requires retirement villages to comply with the following terms:

• The village must take all reasonable steps to enter into a new agreement for the unit in a timely manner after termination.
• If a new agreement for a unit has not been entered into within three months, the village must report to you on the steps taken to market the unit, and provide monthly reports from then.
• If a new agreement has not been entered into within six months, the village must obtain a written independent valuation of the unit to establish a suitable marketing price for it. If you do not agree with this valuation, you can obtain a second independent valuation at your own cost, and the village must consider this valuation in determining a suitable price for the unit.
• Former residents must also be allowed to introduce a potential new resident to the village at any time, but the village is not obliged to accept a resident who does not meet entry criteria.

No opportunity for capital gain

The occupancy rights arrangement means that you will generally not stand to profit from any capital gain if the value of the unit increases during your residency. This was another common complaint among retirement village residents surveyed in 2020.

This arrangement does mean however that you will not foot the capital loss if the value of the unit decreases.

There are some agreements which do allow the resident to sell the occupancy rights and obtain any capital gain (or bear the loss if the property value is lower than when you purchased), often if the village is unable to resell the occupancy rights within a certain timeframe.

Fees

The deferred management or “exit” fee is the charge which will usually be deducted from the repayment of your advance when your agreement ends. You should note whether this is a fixed amount or dependent on how long you stay in the unit.

In terms of weekly and monthly fees, you should consider what ability (if any) the village has to increase your fees. If the village can increase your fees, you should consider what any increases will be based on. For example, some villages increase fees in line with their actual costs, while others increase fees in line with inflation/ the Consumer Price Index (“CPI”) because NZ Superannuation payments increase in line with the CPI.

Shifting to a higher level of care

It is important you think ahead to whether satisfactory terms are in place to support your transition to higher-level care if this becomes necessary.

Some villages offer their residents priority access to move to another unit or higher-level care within their villages (such as a serviced unit or rest-home care). However not all retirement villages have the facilities to support higher levels of care and you may need to move to a different supported living facility.

You may also be required to pay more capital upfront to shift to higher-level care. If the cost of higher-level care is more expensive, there is a risk you might not have the necessary capital to upgrade your care when the time comes.

Some villages have financial assistance policies to assist with the transfer, or may give loans to cover transfers. You should ensure that any such arrangements are in writing so that you can rely on them being in place when needed.

Weekly fees continuing after termination

Another issue some residents face is villages continuing to charge fees where the agreement has ended and the resident has vacated the unit, but a new resident has not been found.

The Code of Practice provides that villages must halve the weekly fees charged if a new resident has not been found after six months, though there is no cut-off date for how long this halved fee can be charged for.

It is therefore important to check whether or not your agreement allows the retirement village to continue charging you weekly fees after your agreement is terminated, and for how long.

Seeking Legal Advice

You will need to see a lawyer prior to entering into an occupation rights agreement for a retirement village unit. It is a legal requirement that you receive independent legal advice before signing such agreement, and your signature must be witnessed by a lawyer.

If you or a loved one is considering moving to a retirement village, please reach out to one of our team and we’d be happy to help you navigate the process.

We can also assist you to put in place a valid Will and Enduring Powers of Attorney, which retirement villages will require you to have in place before moving in.

Congratulations to Sarah Anderson – Senior Solicitor

Welcome to Joanne Chen – Law Clerk