Mike Fairbairn, Vice President of ARQRV, addressed an open forum for U3A on 18th Sept 2017.
The content of his address are included in the article below
For those of us that have the good fortune to live long enough to reach retirement there comes a time of decision.
That decision involves whether to continue living in the same house in which we brought up our families and continue to bear the cost and work load associated with a large house or whether we should think about downsizing.
DIFFERENT PEOPLE, DIFFERENT SOLUTIONS
That decision will be different for everyone and there is most certainly no a “one size fits all” answer.
For reasons of their own Governments of all political complexions will encourage us to move into smaller accommodation. But this encouragement has little to do with them being concerned or interested in our well being. It has everything to do with releasing housing stock for the next generation in order to avoid a housing shortage from which escalating prices will result.
I have been asked here today to speak about some of the alternatives which are available to retirees.
PROS AND CONS
To be more specific I will be dealing with the prospect of moving into communities of people of the same generation and of the benefits and drawbacks of this type of retirement living.
There are four apparent alternatives to those of us that decide that our pre-retirement accommodation is too big for us for our retirement years.
First would be to find more compact accommodation. A townhouse would be an obvious choice perhaps.
Second would be to move in with children if their house is large enough or maybe a “granny flat or separate annex if the property is large enough and the relationship still strong enough to survive living in close proximity to your offspring!
Third and fourth are the specialised accommodation offered by retirement villages and manufactured home parks.
MANUFACTURED HOMES AND RETIREMENT VILLAGES
I will be touching on the manufactured home parks and retirement village options this afternoon. Both come with attractive features and some not so attractive ones.
These two offerings may look the same but are in fact quite different and prospective residents need to make themselves aware of these differences because of the benefits and responsibilities that come with both.
Manufactured homes are usually freehold houses (meaning that the house itself is owned by the purchaser) but that the land it stands on together with all roadways and communal facilities provided are the property of the scheme operator. By this means the operator is able to regulate and control the activities of residents (they will tell us for the common good of all). Each freehold owner is responsible for maintaining his house (inside and out) to a specified standard. Under their contracts residents they will typically get the right to use (in common with all other residents and their bona fide guests) the communal facilities provided by the operator. The scheme operator may retain the right to sell the house and some take active steps to prevent an owner selling their house without the operator’s involvement should they wish to do so. Every operator’s contract is different so it is not possible to generalise and prospective residents should proceed with care and take advice prior to signing on the dotted line.
NOT AN INVESTMENT
Anyone considering moving into a retirement village should be aware that they are not acquiring an investment that will grow in value over time. They are in fact exchanging their capital for a lifestyle.
I repeat that retirees entering a retirement village are in fact exchanging capital for a lifestyle. You will not be getting back all the money that you put in as I am about to explain.
Retirement villages fall into three distinct categories.
Probably the most frequently found operating system in retirement villages will be leasehold where the resident enters into a lifetime lease (49 or 99 years) with the operator to occupy a unit and pays an “ingoing contribution”, which is in effect an interest free loan, to the operator for the privilege.
It is quite usual to find that entry into a retirement is confined to people above a certain age. This may be from 55 upwards but it is more commonplace to find higher age restrictions sometimes up to 70. Currently some operators are raising the minimum entry age to ensure that units change hands more frequently to their financial advantage as this is the point in their contracts where profit is generated.
Prospective residents should take into account that their lease with the scheme operator will end when the leaseholder dies or, in the case of a couple, when the survivor dies.
A lease to occupy a unit in a retirement village is not a transferable asset. In other words it cannot be left to someone in the residents will. Only the residual value of the lease (after the deduction of Exit fees, legal fees and reinstatement costs are met) would form part of a deceased person’s estate.
The scheme operator owns the whole village and leases granted to residents are registered with the Department of Natural Resources and Mines thus giving each resident security of tenure but only insofar as their accommodation unit is concerned. Anything not covered by 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 typically be given the right to use the operator provided communal facilities which can include a swimming pool, a bowling green, a library, tennis courts, the village bus and so on.
GENERAL SERVICE FEES
Residents will be 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 taking into account 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.
Currently combined fees vary between $400 and $700 per month but these are the extent of our knowledge. It is possible that there may be monthly fees outside these two figures.
RULES AND REGULATIONS
All villages will 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 WITHIN UNITS
The maintenance repair and frequently the replacement of capital items in accommodation units is frequently (but by no means always) the responsibility of the resident under their contract.
EXITING – REINSTATEMENT
When a resident (or the surviving resident) leaves their unit the 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.
WAITING FOR PAYOUT
Under current legislation the operator does not have to pay the former resident their exit entitlements until the unit has been resold. This has resulted in some hardship resulting when a resident has to go into care and raise a care bond. Effective from November 2017 a compulsory “buy back” will come into effect. This compels a scheme operator to 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 comes into effect.
LOAN LICENCE CONTRACT TO RESIDE
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 but the resident’s financial interest is not registered with the Department of Natural Resources and Mines.
FREEHOLD CONTRACT TO RESIDE
Under this arrangement each individual unit is owned by the resident who is responsible for all maintenance and repairs internally and externally as well as replacements of all items within their unit.
The land on which the village stands is usually owned by the Body Corporate of which each freehold unit owner is a member.
There is either a scheme operator, who may own the communal facilities and the land on which it stands, or a management company appointed by the Body Corporate members of which have been elected by the residents from among their number.
Common facilities within the village are maintained from a sinking fund which is a levy on residents while communal facilities are maintained by the scheme operator or Management Company and charged to residents in their general service fees on a cost recovery basis.
Living in a retirement village can be either a joy or a chore depending on what you make of it. The “feel” of a village is important. I would urge prospective residents to look at as many as possible and compare both the cost and facilities on offer. And while doing so engage current residents in conversation if you can get away from the commission hungry salesperson! Visits after office hours can frequently give a better impression than the chatter in your ear from the salesman!
A WORD OF WARNING
It is appropriate to warn that going into a communal living environment does not suit everyone. Not everyone is temperamentally suited to this way of living. In the last year I have helped seven members extricate themselves from their ill-considered decision to buy into a retirement village. So please think with care before signing
A FINAL WARNING
When negotiating any legal contract including one being offered by a commission led salesperson keep in mind that verbal promises and assurances made are not subsequently enforceable. He might be a nice guy and have got your trust but:
If it isn’t in writing it was not said when the chips are down. If I had a Dollar for every time I have heard “But we were told” or “the salesman said” I would be a very rich person!
So where does ARQRV come into the equation? ARQRV is the only recognised consumer protection organisation in Queensland that looks after residents and, since our AGM last earlier this month, prospective residents of retirement villages in Queensland. We have just under 7,000 members within Queensland, All committee members, including me, are unpaid volunteers receiving only out of pocket expenses in exchange for their work. We are funded entirely by membership fees.
Our website is www.villagers.org.au where joining details may be found for anyone interested.