Mon, 14 Mar, 2016
Hidden costs to retirement village contracts
Entering a retirement village contract in Australia can be a risky financial move.
A review from Australian consumer regulator CHOICE found that by and large standard contracts from major village developers in Australia were long, complicated, confusing and, “appeared to contain terms that weighed heavily in favour of the village operators.”
As every state has different rules regarding disclosure of retirement village costs and regulations it can be difficult to determine the true cost of living in or trying to leave the village.
The complicated contracts affect approximately 80 per cent of Australia’s 190,000 village residents.
And it’s interesting to compare this model to the one adopted in areas like Europe and the US, who have chosen a pay-as-you-go lease style contract, making price comparisons much easier.
Retirement Living Council (RLC) executive director Mary Wood told CHOICE the ingoing contribution model was originally set up in the interest of retirees by public-minded people: "One reason it exists is so people without a lot of money can live in a higher quality, age-adaptive environment with amenities that wouldn't be affordable to them otherwise.”
“Most people who live in retirement villages are pensioners on low incomes,” Wood added. “Without access to the funds upfront, most retirement villages would not be built, Wood maintains. It's a view that's shared by others in the industry, who say retirement villages are generally not attractive investment prospects. "The exit fees represent the profit margins for developers.”
CHOICE recommends you take the following measures when choosing a retirement village
- Have a lawyer review the contract and make sure you understand all fees?
- Instead of an upfront lump sum, is there an option to pay by the week or month?
- If you pay a lump sum, how much will you get back when you leave?
- What ongoing fees will you have to pay and what exactly do these fees cover?
- Can fees increase during the term of the contract? If so, can you dispute them?
- What do any exit fees – including a deferred management fee – cover?
- Who's responsible for selling your unit if you leave?
- Are you still liable for weekly fees after you move out?
- Do you have to pay weekly fees if you leave the village for extended periods?
- Does the company that owns the village operate the village?