With an increasing global baby boomer and Gen X aging population, housing for retirees is becoming a minefield, and given it sometimes involves significant assets obtained over a lifetime, care should be taken.
In New Zealand, housing options for retirees range from: staying in your own home (which presents ongoing cashflow issues to pay expensive necessities such as council rates and insurances); or selling up and moving into a retirement village; or for those with little or no assets, moving into long term residential care subsidised by the Government; or moving in with close relatives, such as adult children. Today we discuss occupation right agreements (“OCR”) associated with living in a retirement village. Next time we will discuss reverse mortgages and how these can help retirees who own their own homes with cashflow and necessary remodelling renovations.
What is an Occupation Right Agreement?
Occupation right agreements for living in a retirement village are becoming a popular lifestyle choice for retired Kiwis who have assets. An OCR is the common name for an agreement entered into between a retirement village and a resident of the village. In exchange for a capital sum (often obtained by the sale of the family home), the resident obtains a “right” to occupy a villa, serviced apartment or full care suite in a retirement village. Oftentimes, retirement villages have a private hospital aspect to it, meaning it provides hospital level care facilities for when a person becomes unwell. Additional to the capital sum, an OCR usually requires a resident to pay a weekly fee to the village, often for maintenance and services. On termination of an OCR (generally when a surviving spouse passes away or when other conditions in the OCR are triggered), a deferred management fee is deducted from the capital sum before the balance of the resident’s funds are returned to the resident or their estate.
What Else Should I Consider in an OCR?
Given there are a substantial number of retirement villages registered in New Zealand, there are many other financial factors to consider, alongside the capital sum, when choosing a retirement village. What other costs are involved and are these outlined clearly in the OCR? For example, is the weekly fee fixed for the term of the OCR or can it be increased over time by the retirement village? What is the exact amount of the deferred management fee, how is it calculated, and what term is it over? What utilities and costs (such as power, water, insurances), are included in the weekly fee, and what other services does a resident have to pay for outside of the weekly fee, such as activities and using common areas and facilities?
Do I Have Access to Medical Care & What are the Limitations?
Potential residents should enquire as to what pathways and processes are contained in the OCR to hospital level care, if it is even provided by the village, and what additional costs, if any, are involved should higher level care be needed on a temporary or permanent basis. Can residents receive a higher level of care while still residing in their own unit and if so, what is the cost? Given an OCR is a legally binding contract containing potential liabilities, it should also cover what happens if a resident’s unit is damaged (and therefore uninhabitable) by a destructive event such as a fire, accident, or natural disaster. Would a resident have somewhere else to live in the village while their unit underwent repairs? Other important questions include: when an OCR is terminated, how long before a resident or their estate can expect the balance of their capital sum back? Is it only upon sale of the unit to a new resident (and is there a specified timeframe for this) and will a resident’s estate be paid interest on the repayment figure in the meantime?
Should I seek Legal Advice Before Signing an OCR?
In short, yes. Under the Retirement Villages 2003 Act, residents are required to obtain independent legal advice before signing an OCR. If you are considering your options, including selling the family home, it is always important to obtain legal advice before signing any contracts. Timing is also crucial to ensure you can move smoothly into your new home without having to stay elsewhere in the interim. Importantly, and unlike traditional land ownership, rights to occupy under an OCR do not provide residents with a registerable interest in land and you will therefore be limited on how you can use your unit. For example, mortgages cannot be registered over the unit (reverse or otherwise), and your interest cannot be transferred to others (such as family), nor can it be rented out.
Got questions? Feel free to connect with us by email or via our website at www.ginajansen.co.nz.
