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If you have recently moved into a retirement village, you will know - if your lawyer has done their job properly - that you have not made a wise or profitable financial investment. Instead you have decided to rent a particular sort of lifestyle that is available to you on prescribed written terms and conditions, and over time you will lose about thirty percent of your original capital as well as having to meet ongoing financial commitments. When you die the disposing of your legal interest will be in the hands of the village owners. Your family will have little say in the process and it may be many months before your estate receives any money and some expenses will continue to fall due during that time.
If, upon fully understanding the above, you have decided to go ahead and enter a retirement village because it provides the lifestyle you want in your later years - then that’s fine. You are an adult and are entitled to make your own lifestyle decisions and moves. As with all decisions there is an element of risk and none of us really have the crystal ball that tells us completely accurately what the future has in store for us.
Recently I watched an item about a problem with retirement villages on the television programme Fair Go. The June edition of the Grey Power magazine also has an article on retirement villages, so perhaps it is a topic many are currently concerned about. It made me wonder as to who benefits from a retirement village. It costs many millions of dollars to build a retirement village complex and obviously the promoters and owners are seeking a good return on their investment. Responsible village owners will have a concern for their residents’ welfare and will want them to be happy, but they are not running a charity. Theirs is a business and naturally they want all the legal niceties well sewn up in contracts. Government legislation requires full disclosure of the terms and there are various statutory safeguards. However, it is largely a ‘take it or leave it’ option they offer you when you are considering whether to move to a retirement village. Clearly the village owners benefit from retirement villages.
One hopes that the residents also benefit from living in a retirement village, though this will not usually be a financial one. For many people, the company of others with similar interests, the security, the new buildings and extensive facilities without any care or responsibility for maintenance, will be regarded as a significant benefit. So it seems residents benefit too. When practising law I encountered very few complaints from retirement village residents.
Perhaps, as the Fair Go programme illustrated, the ones who benefit the least are the beneficiaries of deceased retirement village residents. They often have to wait a long time to receive their eventual inheritance and it usually will be much less than if Mum and Dad had stayed living in their own separately owned house or unit. In the recent Fair Go programme it seemed that the complainant had good grounds for concern. The management company appeared not to have been as assiduous as it might have in pursuing a sale of the licence to occupy, and there was a lack of communication and issues around the sale price. However, often the complaints seem to arise out of a lack of understanding by the following generation as to exactly what it was Mum and Dad had willingly agreed to in the first place.
Quite simply, the retirement village owners are usually contractually entitled to sell at the price they think is the current value (it can always be established by independent valuation) and to keep any surplus they make. If the market is depressed and it takes months to sell the interest, then that’s the luck of the draw. Expenses will continue to fall due and be deducted from the eventual payment made to the estate. The amount to be paid out will be calculated from the original payment made by the deceased resident not the amount for which the company manages to sell the interest. That is a term of the contract. The village owners have to act reasonably and in good faith but they do not have to take a generous approach just to keep the beneficiaries in the estate happy. Some villages do have a term in their contracts where they will pay out if the occupation licence interest has not been sold to a third party within six months from the date of death, but this clause is not universal.
Retirement village interests are therefore of a reduced benefit to the next generation of the family. The question then is should we really care? Certainly we should make sure that our family is well aware in advance of the financial implications of Mum and Dad selling the family home and going into a retirement village. But the decision is that of the parents. If you have worked hard to acquire your property and you have decided that a change of lifestyle is what you really want then no one should criticise your decision.
Tell your children that their reward will not be financial, but the warm glow they will experience from seeing their parents enjoying their later years. If they don’t like that - remind them of how much you sacrificed to bring them up. A bit of emotional black- mail should shut them up!
© Terry Carson - June 2010
Disclaimer: This article is of a general and summarised nature only and should not be relied upon to ascertain individual rights, in any particular situation.