Factors worth considering about exiting your unit when picking a retirement village

Sharon Bennett, Principal at the Retirement Unit Surrender Consultancy, shines a light on the confusing business of surrendering an occupation right when exiting a retirement village.

Surrendering an occupation right/licence (your right to live in your unit) is not always considered in detail when entering into an occupation right agreement (contract to buy your occupation right/licence). There are a few crucial things to consider when picking a retirement village that will affect you financially when you finally move out of the village.

Firstly, is how much the deferred management fee (or DMF) will be (this is the amount due to the village on surrender of your occupation right/licence and is specified in your occupation right agreement, this covers maintenance of the village communal areas, upkeep of facilities provided etc). The DMF is payable to the village when you move from one unit to another or when you finally leave the village altogether and is capped to a certain percentage. The DMF varies from village to village and can range from 20% to 30% of the occupancy advance (price you pay for your occupation right/licence). This is either calculated on a monthly or a yearly basis depending on the village. So, for example some villages will calculate the DMF based on the actual time you have occupied the unit rounded off to the nearest month, some will charge you a whole year’s DMF regardless of whether you move out of your unit in January or December of that year, this obviously determines how much your DMF will be and the final figure you receive on surrender.

Secondly, ongoing fees are usually payable even after you have vacated your unit until it’s sold, this is set out in your occupation agreement as to how much these fees are and how long the same are payable for. This is not applicable when you transfer from one unit to another within the village i.e., townhouse to services apartment, but it’s important to consider how this will affect you when you exit the village.

Thirdly, what is the village policy with regards to when you receive your refundable amount (this is the amount due to you on surrender and is calculated by deducting any outstanding fees, monies due to the village and deferred management fee from your original occupancy advance). The village is under no legal obligation to pay out your refundable amount until the unit has sold, and there is no time limit as to how long this process can take. However, some villages will buy the unit from you if this has not sold within six months of your surrender, known as a village buyback. This is worth bearing in mind when choosing a village as you might be waiting an undetermined amount of time for your funds on surrender.

So, it pays to ask the village sales representatives the right questions when you are considering which retirement village suits your needs not only about the facilities and fees when you are in residence, but also about the financial implications and processes when you come to exit.

About Sharon Bennett

Sharon Bennett is Principal at the Retirement Unit Surrender Consultancy - a consultancy firm specialising in providing assistance on the surrender of occupation rights/licences for retirement village units.

2 comments

  1. Hello can you help please.
    I have been trying unsuccessfully to find information on the Retirement Village buyback schemes on your website.

    I understand that every village & situation is different however anything in general would be fantastic.

    Mum just turned 99…bought (back in 1994) what we believe to be a freehold townhouse in a lifestyle block before retirement villages & rights to occupy existed. As the years have gone by the property has been sold to various Property Groups (Ryman & current Arvida).

    The family (who live away from mum throughout NZ & Aus) is now starting / needing to consider what happens when mum passes on. Arvida i believe are approaching mum who gets lost in the seriousness of the meetings & is digging her heels in about selling while alive.

    Can you please advise where we can source what we need to consider….ie selling on local market or to Arvida via ta buyback option.

    • Thank you for getting in touch.

      All residents in a Retirement Village have the terms and conditions of their tenure outlined in a contract (often referred to as an ORA – Occupation Rights Agreement). If your Mother has been in the village for a considerable time the name of the contract may be different, but there will still be a document that was signed by both parties to outline rights, obligations, responsibilities as well as exit plans.

      Due to the unique nature of these documents, it is not possible for us to offer any advice on your mother’s specific situation.

      However, in general, village ‘buy-backs’ are not uncommon. They occur when the operator of the village usually wishes to substantially change the terms of tenure for future owners of the unit, or when the operator perhaps wishes to undertake a large renovation or complete demolition of the unit to update their market offering.

      In complex situations like this we suggest speaking with the older person about your concerns and offering your support as needed. Age does not mean that older people are unable to make good decisions. Is there an Enduring Power of Attorney (EPOA) in place? If the older person is not able to make decisions, then the EPOA can be activated and others can act on behalf.

      Also, speak with the current operator and see what information they can provide without breeching anyone’s privacy. Perhaps they can offer some helpful insights.