Retirement village terms under microscope

With seven retirement villages on the Hibiscus Coast, and at least two more planned, a recent report by Consumer NZ into the contracts offered by villages should attract considerable interest.

The report, released this month, reviews contracts offered by six major retirement village operators – including Bupa, Metlifecare and Ryman Healthcare, which all operate locally. It found terms that Consumer thinks unfairly favour the village and risk leaving residents out of pocket. Consumer also suggests those terms could also fall foul of the Fair Trading Act.

Consumer’s head of research, Jessica Wilson, says her organisation has had concerns for some time about the fairness of retirement village contracts.

“We undertook this research to take a closer look at the terms and conditions residents are faced with when they move into a village,” she says.

The research included a survey last year, which 1680 people responded to.

A key issue – also flagged by Retirement Commissioner Jane Wrightson in a discussion paper released last December – is that residents do not get any capital gain when they sell their units – this is retained by the village owner/operator.

It was the number one complaint among those that Consumer surveyed.

Most villages offer a licence to occupy, costing anywhere from $200,000 to more than $1 million for a one-to-two bedroom unit. Before moving in, you sign an “occupation right agreement” which gives you the right to live in the unit but no ownership rights.

Income for the operator is forecast on selling a licence to occupy several times within a relatively short period. The average tenure of a unit is about seven years.

In addition to purchasing the licence, residents usually pay a weekly fee to cover the village’s operating costs.

When you leave the village, a large slice of what was paid for the licence is taken as a ‘deferred management’ or ‘exit’ fee. This can be 20 to 30 percent of the licence cost. So if you paid $500,000, and the village charged a 30 percent deferred management fee, you’d get back $350,000.

The contracts of the six operators Consumer reviewed all include retention of any capital gain.

“Terms allowing the village to retain the capital gain clearly benefit the operator. But we think they significantly disadvantage residents. Across the Tasman, some operators allow residents to share capital gains, showing there are other options,” Consumer states.

Its review also found that several contracts made residents liable for the cost of repairs to appliances and other items in their unit, even though they didn’t own them.

Consumer considers these terms hard to defend.

“They also conflict with residents’ rights under the Consumer Guarantees Act to receive goods and services of a reasonable standard. If the oven in your unit fails, the village should wear the cost.”

The Retirement Commissioner’s discussion paper recommends reviewing both the Retirement Villages Act and the Retirement Villages Code of Practice – something that Retirement Village Residents Association NZ president Peter Carr also believes is needed. He describes existing regulation as “heavily skewed” in favour of village operators.

The organisation representing the industry, the Retirement Villages Association, accepts minor changes may be needed, but rejects the need for wholesale reform.

“In general, we consider the Act offers residents a high degree of protection and does not need to be reviewed,” executive director John Collyns said.

He says operators use different commercial terms to distinguish themselves from their competitors. “We think it’s crucial that the CFFC [formerly known as the Retirement Commission] doesn’t interfere with those commercial terms because that will reduce choice and increase costs,” Mr Collyns says.

“Residents want financial certainty when they move to a village. This means getting rid of the hassles of home ownership, such as repairing the roof, dealing with storm damage, or weathertight issues. A standard licence to occupy means residents trade a share of any capital gain for that financial certainty. If a resident wants a share of the capital gain, they’re also going to share the unexpected repairs and maintenance, keeping the village’s common facilities in top condition, or dealing with expenses such as rates or insurance increases.”

Submissions recently closed on the Retirement Commissioner’s paper, following which recommendations will be made to Government.

The Consumer report can be found at www.consumer.org.nz