What’s wrong with retirement village contracts?

By Lucy Dean

September 16 2017
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Retirement village contracts can be so complex that Australians should seek legal advice before signing them, a consumer protection lawyer has urged.

Maurice Blackburn, legal advice, retirement home, retirement village, contract law, legal advice, retirement planning

The senior policy officer at the Consumer Action Law Centre, Katherine Temple said it can be “difficult” for retirement village residents and their families to understand their rights as a result of the complexity of the contracts.

Noting that some contracts can be more than 100 pages in length, she said: “I would suggest to residents and their families to get legal advice before moving into a retirement village.”

Maurice Blackburn Lawyers recently announced that it was proceeding with its investigation into a potential class action against the Aveo chain of retirement housing operations, saying: “We don’t think it’s fair or legal to subject elderly people to complex and confusing contracts that contain unfair terms.”

“There is understandably a high level of concern that people looking to enjoy their retirement, and who may be physically or mentally vulnerable, should not be taken advantage of by unscrupulous business models.”

Ms Temple, who welcomed the news, explained that “part of the problem” with contracts is that fees are often charged based on future events.

She highlighted three main “red flag” areas to “really be aware of”:

The deferred management fee

This fee is usually a percentage of the sale price of the unit. “Obviously, you don't know what the sale price of your unit will be so you don't know how much that fee will cost you,” she said.

The lawyer explained that due to the deferred nature of the fees, people often don’t have enough money to move somewhere else once the exit fees are taken out.

“If you're getting charged a 35 per cent deferred management fee after two or three years and you decide you want to leave, then you've lost 35 per cent of your purchase and then you don't have enough money to go somewhere else,” she said.

Reinstatement and refurbishment costs

“Although in the contract you'll be liable to pay them, you don't know what the amount will be until you go to move out,” she said.

“A lot of the exit fees you will pay won’t be quantifiable when you move in and that’s a problem.”

The loan-lease arrangement

Ms Temple said the “other big trap” is understanding that many retirement villages operate under a loan-lease purchasing arrangement. This means that tenants are not actually purchasing property, rather the licence to reside in the village.

“That's not obvious a lot of the time in the sales pitches that people hear that talk about buying into a retirement village. You're not buying a unit, you’re just buying the right to live there and that's very different and so they can impose a lot of restrictions on what you can do while you live in the village.”

Arguing that tenants and their families “are not getting treated fairly under the current system”, Ms Temple called for a lifting of industry standards.

“Australia has an ageing population and there is a push for people to downsize so we anticipate that more and more older Australians are going to be moving into retirement villages and other types of retirement housing.

“It's really important that we have strong protections in place to make sure that older people are treated fairly when they move into these places.”

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