Occupation Right Agreements

When a person moves into a retirement village, they are usually only paying for a right to occupy a particular unit, and can be surprised to learn they will not be the owner of the dwelling itself or the land it sits on.

Although retirement villages have various ways of allowing residents to occupy their units, over half of the retirement villages in New Zealand use this arrangement, called “Occupation Right Agreements”.

Occupation Right Agreements are written agreements that give you the right to occupy a unit in a retirement village on certain terms and conditions.  It is different from regular property ownership, because you are paying for the right to live in the unit, but you do not own the unit itself.  The retirement village remains the owner of the unit whilst you are living there.

Because you are not the owner of the unit you live in, there are certain things you cannot do.  For example, in most cases you cannot mortgage the unit, transfer your right to occupy to someone else, or sell the unit, and you yourself must live in the unit – you cannot rent the unit out.

Occupation Right Agreements also cover matters such as your costs, the village manager’s duties, procedures relating to meetings and consultation, termination rights and the complaints and disputes resolution process. The Retirement Villages Act 2003 sets out very clearly what must be contained in an Occupation Right Agreement.

Commonly, there are three major costs associated with living in a retirement village in New Zealand.  These are:

  1. The regular village charge, which covers the usual costs of running the village, including rates, insurance and staffing; and
  2. The deferred management fee (sometimes known as a facilities fee or village contribution), which generally covers the cost of the communal facilities, management, long-term maintenance and the refurbishment and re-selling of your unit. The deferred management fee accrues during your occupation of the unit and is generally capped at somewhere between 20% and 30% of the initial amount you paid to purchase the right to occupy the unit.  The deferred management fee is deducted after you have left the unit from the money you are entitled to receive back; and
  3. The loss of any capital gains on the unit, which the operator of the retirement village retains when the right to occupy your unit is sold to someone else.

In addition, when you leave the retirement village, you (or your estate) will usually have to continue paying the regular village charge until the right to occupy your unit is sold to someone else.  This is because, even though you are not living there any longer, the retirement village still has to cover the costs associated with your unit, such as the local body rates and the insurances.  However, in some cases, the continuing charges may be reduced by 50% if someone new has not purchased the right to occupy your unit within six months of you vacating it.

Because there are many things to consider when purchasing the right to occupy a unit in a retirement village, it is a legal requirement that you must take legal advise before signing an Occupation Right Agreement.  A lawyer must be present when an Occupation Right Agreement is signed.

If you would like to discuss Occupation Right Agreements in more detail and find out what we can offer, then please contact us and book a free 30 minute consultation or contact Kathryn Jorgensen at kathryn@corelegal.co.nz.

 

 

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