Skip to main content

This article provides a brief outline on the operation of retirement villages in South Australia, with the aim of clarifying some misconceptions. It is aimed at people who are considering moving to a retirement village, as well as current residents and their families.

Multiple arrangements for retirement housing exist. In this article we will focus on one of the more common arrangements; namely a loan/licence agreement with a retirement village operator who agrees to provide a future refund of the ingoing contribution based on an agreed formula.

The rules of retirement villages

Retirement villages are run by an operator (also called an administrator or authority). A village can be operated by community-based organisations, Councils or private entities. The people residing in the retirement village are referred to as ‘residents’, and typically occupy a ‘residence’ or ‘unit’ (also referred to as an apartment or room).

In South Australia, retirement villages are governed by the Retirement Villages Act 2016 and associated regulations ("the Act"), combined with individual contracts entered into between the operator and the resident (“Residence Contract”). The content of the Residence Contracts are regulated by the Act, and can vary from village to village, and even unit to unit. As the legislation has become more detailed over time, the length of Residence Contracts has increased.

You don’t ‘buy’ your unit

One of the common misconceptions surrounding retirement villages is the nature of the legal interest that the resident has in their unit. Typically the resident receives no property right in the unit. Residents do not ‘buy’ their unit as they would a house for example, but instead receive a contractual right to reside in the unit in return for paying an ingoing contribution. The initial contribution is often called a ‘premium’, and is effectively an interest-free loan to the retirement village operator. So it is perhaps more accurate to refer to the transfer of a retirement village unit as a ‘relicensing’ of the unit, rather than a ‘sale’.

I’ve agreed to become a resident – what’s next?

When you reach an agreement with a retirement village to become a resident the operator is required to provide you with a set of documents as dictated by the Act. These include the Residence Contract and a Disclosure Statement and, among other information, the documents should provide you with details about:

  • the residence you are intending to occupy;
  • the name and contact details of the operator of the village;
  • your rights and obligations created by the contract;
  • the right to cool-off and rescind the contract;
  • your right to occupy the residence;
  • any recurrent charges and fees during occupation, the ingoing contribution and any exit fees you will be liable for;
  • the cost of any additional services and facilities available;
  • your right to terminate the right of occupation of the residence and receive your exit entitlement;
  • a dispute resolution policy;
  • responsibility and cost for repairing and replacing the fixtures, fittings and furnishings of the residence;
  • what utilities and services you may be required to pay for;
  • how your exit entitlement will be calculated;
  • any insurance policies that you or the operator are required to have in place.

Entering the contract and occupying the unit

Under the Act, the operator is required to give you the Residence Contract and Disclosure Statement along with other rules and policies of the village at least 10 business days before you sign the Residence Contract. This is to provide you with time to read through the documents, and receive independent legal and financial advice. You may decide not to enter into the Residence Contract during this time.

If you do choose to sign the Residence Contract, the Act provides a further 10 business days from the day of signing during which you can ‘cool off’; this means that you may cancel the Residence Contract and not become a resident. You either need to wait the 10 business days, or waive the cooling off period, before occupying your new residence. If you wish to waive the cooling off period and move in immediately you can complete a waiver pursuant to the Act.

Depending on the terms of the Residence Contract, you may need to pay a deposit at the time of signing the Residence Contract. You will likely be required to pay your full ingoing contribution before being allowed to occupy your new residence.

Within 10 business days of moving into the residence, the operator should complete a premises condition report setting out the condition of the fixtures, fittings and furnishings in the residence. This report must be signed by both you and the operator. This report will be used when your occupancy ends to determine the costs payable by you or your estate to refurbish the residence. It is important that you take the time to review the report and raise any concerns that you may have about it.

Ingoing premium

As referred to above, the typical arrangement is that you will be granted a license to occupy a residence in return for the payment of an ingoing contribution or premium. The specific details of the ingoing contribution will vary depending on the terms of the particular Residence Contract. The premium is sometimes referred to as the "unit value", or "relicensing value". The ingoing contribution is also described at times as the "purchase price" but this is an inaccurate description for the reasons outlined above.

The way your premium is administered is subject to the Act and your Residence Contract. When you pay an ingoing contribution to reside in an existing unit of a retirement village the village typically uses your ingoing contribution to fund the "exit entitlement" or "refund" due to the previous resident (sometimes referred to as an ‘outgoing resident’) of that residence. The amount that is due to the outgoing resident as an exit entitlement will depend on the Residence Contract that they entered into previously with the operator.

Ongoing fees and charges

Operators will typically charge a recurrent charge or maintenance fee. This is an ongoing fee to cover the day-to-day expenses of operating the village. The amount charged and the services it covers will depend on the Residence Contract. It may be a weekly, fortnightly or monthly charge. This will usually be payable by you on top of any ingoing contribution. Depending on the Residence Contract, it is likely that the operator will be able to vary the recurrent charge from time to time, but will have to justify any increase based on actual costs.

Outgoing fees and charges

It is important that you understand the costs and deductions you will be liable for when you vacate your residence and terminate your Residence Contract so as to avoid any unpleasant surprises for you or your family in the future. When you terminate your Residence Contract the residence will be offered to the public for relicensing. You will likely be owed an exit entitlement by the operator. This is usually a refund of your original ingoing contribution minus agreed deductions.

Any fees that apply when vacating your residence should be set out in your Residence Contract. Fees may include refurbishment fees to return the residence to the state that it was in upon your initial occupation the unit, a remarketing fee (often including a selling agent’s fee), a capital fee for the village and relicensing fees of the operator (including the operator’s legal fees). In addition, the operator may charge what is often termed a “Deferred Management Fee” that may be calculated on an increasing scale in accordance with the number of years of occupation, or based on some other method of calculation. Effectively this is the operator’s profit.

The Residence Contract may contain provisions for how a capital gain or capital loss in the value of the licence is treated (i.e., the difference between your ingoing contribution and a new resident’s ingoing contribution). It may be shared between the operator and you, or it could be entirely to the benefit or detriment of one party.

Subject to the Act, an operator may continue charging a resident the recurrent charges for six months following the termination of the Residence Contract, or until the residence is relicensed to a new resident. Typically the operator will take on the payment of this recurrent charge and recoup it from the exit entitlement due to the resident when the refund is made, although it does depend on the agreement.

The main thing to remember is that the ingoing contribution or the relicensing value will not necessarily reflect the exit entitlement that is due to you or your estate at the end of your licence. Depending on the circumstances, it can be significantly less.

When will the premium be refunded

The timeframe and conditions for repayment of the ingoing contribution as an exit entitlement is subject to the Residence Contract. Pursuant to the Act it should be paid within 18 months of the Residence Contract being terminated .

It should be noted that typically the legal interest in the exit entitlement is treated as a joint asset of a couple. Therefore, in the case of a couple residing in a retirement village together in the same residence, the exit entitlement will usually only be payable to the last residing resident of the couple. This is important to note for estate planning purposes, particularly for couples in a second marriage or a "blended family". You may need to seek estate planning advice as to how to best deal with an expected exit entitlement.

If the exit entitlement is due to a deceased estate, it is likely that an operator will require a grant of Probate before paying the exit entitlement to the estate. Probate in its simplest form is the verification by the Supreme Court that a Will is valid and that the Executors are legally entitled to deal with the estate assets.

Moving from a retirement village to an aged care facility

The Act provides an exception to the above rules for residents who need to move from a retirement village to an aged care facility (approved under the Aged Care Act 1997). In order to assist with meeting the contributions for aged care residents of retirement villages who meet specific criteria may be able to access the exit entitlement that is due to them without waiting the (at worst) 18 month period.

If you meet the criteria and are choosing to pay a refundable accommodation deposit and you either do not have ready access to funds to make that payment, or your personal finances would be seriously affected by such a payment, you may make an application to the operator of the retirement village to make the payment of the daily accommodation payments to the aged care provider on your behalf. If required to do so, the operator will make these payments and later recoup them from the exit entitlement that would otherwise be owed to you. If you are considering applying for such a payment to be made, we recommend speaking to a solicitor and financial advisor first to determine whether it is appropriate in your circumstances.

There are many intricacies and variations applicable when entering into a Residence Contract. We hope that this article has brought your attention to some of the main issues you may encounter so that you can better appreciate the rules governing your potential or current residence.

Due to the complexities and variations in this area of law, before entering into an agreement to reside in a retirement village, it is recommended that you seek legal and financial advice specific to your circumstances, from both a solicitor and a financial advisor with experience in this field.

Whether or not you decide to become a resident of a retirement village is a choice for you to make. Whilst there can be significant costs involved, there are many benefits to be had. You, like many others, may find that the lifestyle and living arrangements offered by a retirement village is the perfect option for you at that time in your life. By knowing some of the risks, and appreciating the need for independent legal and financial advice, we hope that the decision to move to a retirement village will be a positive experience for you and your family.