Retirement villages and manufactured homes are popular choices for retirees looking to downsize, but each of them comes with rules and regulations that it is essential you understand. Discover the pitfalls and make a well informed choice before proceeding with the purchase of a home in either of these accommodation options.
As alluded to in my previous post on Retirement Housing Options under the headings “manufactured homes” and “retirement” villages, in this post I discuss the potential downside of those options. These require careful consideration by you, your family and legal & accounting advisors. Note that legislation and applicable regulations can change between state jurisdictions.
At the outset I must explain I am not a lawyer or an accountant and have drawn on material from Caxton Legal Centre Inc in addition to personal and related experience, and research. Inspiration has also been drawn from Homes for Homes, an initiative from The Big Issue.
As with any business affairs that may impact our financial, physical and mental well-being, and more so if you are concerned about what you may pass on to loved ones, it is essential that you gain a thorough understanding of what you are signing up for. This includes how you or your beneficiaries might be allowed to liquidate and indeed benefit from your investment at the appropriate time.
As many of us consider our living options as we advance in years, we consider lifestyle, proximity to friends, family, amenities/services and affordability. It is hoped that any areas used for retiree living are located such that they are an integral part of broader communities.
There is plenty to consider, it’s not all straightforward and laws change (too) frequently. Do be sure to read all the applicable documentation (plenty of material there), seek assistance from legal and accounting advisors and be wary of claims/assurances not in that documentation. Be informed and assume nothing.
Manufactured Home Parks
One of the downsizing options you might consider is the relatively low cost retirement villages or “manufactured home” parks; these are certainly an affordable option.
Along with your own living space you may have common use facilities at your disposal. These may be over and above what you might have in a unit or apartment, perhaps parking areas for guests, swimming pool, gym, BBQ areas, tennis courts etc. These are of course shared, and you need to be comfortable with that form of space sharing and communal living. If so, you will no doubt find these additions very attractive. Of course you need to be sure you will use them, as you will be paying for their maintenance.
Your checklist for manufactured or relocatable home communities
Do be aware of the following:
- you will not own the land associated with your home, and the landowner may not be the manager of the park.
- you will pay rent for the land and rent can, and most likely will, be changed (read “increased) . You may not have any say in that change other than that it may be defined or limited within your Site Agreement (contract) and/or by State legislation. Check those terms carefully before signing anything.
- purchasing your manufactured home may impact arrangements you have with Centrelink e.g. rental assistance and pension; it is your responsibility to keep Centrelink informed.
- if you have taken a loan to buy your home then you will continue to be solely responsible for paying that loan.
- rent for the land will continue to be payable whilever your home is located there, irrespective of whether you are living in it
- check any terms & conditions related to selling e.g. where advertising is allowed, restrictions on selling through agents, mandated selling through park owners etc. Again, be aware that rent is still payable (as above), while you or your power of attorneys are trying to sell.
- You have no control over who your neighbours will be, with limited recourse outside standard obligations should their behaviour be unacceptable to you. Whilst this is the case in any residence it can have greater impact at close quarters.
- the landowner and park managers may change without notice and the good relationship you had with management when you moved in may not continue.
- the landowner may be entitled to unilaterally terminate your rental and request that you remove your home – an expensive and very inconvenient (to say the least) process.
- There is no obligation on the landholder to continue the land use as it was when you moved in, or to continue operation of the park. The risk of this may be higher where the park is located in areas where land values are increasing. The land may be worth much more if sold for another purpose, e.g. residential development.
- Although parks may be advertised for over 50’s, unless the landowner has been granted a specific exemption other age groups cannot, by law, be refused a place – this is not the case in a ”retirement village”.
Other important checks for relocatable homes
Pre-purchase inspections for pests and building condition are always strongly advised, particularly if the building is not new. If you are purchasing from the mobile home park owner, you need to ensure the park owner will, prior to your moving in, rectify any defects. If you are purchasing from an existing owner, the park owner must agree to the assignment of the Site (rental) Agreement and cannot unreasonably refuse to do so. You should check the current rental.
Utility costs may be included in your Site Agreement. Whatever the metering arrangement is you are entitled to see the relevant utility billing.
Park owners are responsible for the maintenance and access to common areas and facilities and likewise as a homeowner you are responsible to keep your building and immediate surrounds well maintained and safe. There may be strict rules regarding your maintenance obligations.
Retirement village rules and regulations
One of the key differences between Manufactured Home Parks and Retirement Villages is that the latter have exit fees and even if you hold a freehold title, it is not the same as owning your own home.
Villages vary considerably between promised lifestyle expectations and facilities, as do the options to reside in them and the associated financial implications. If you are considering this option as a couple, it is worth noting that if either or both of you need to go into care, the financial burden of the initial decision may impact your capacity in that regard. Even if the Village has an associated Aged Care Facility, there may be no guarantee that you will be able to access that facility; there can be different institutions, with different access rules.
Retirement village ownership variations
Village resident “legal interest” options include:
- Freehold – may still be subject to a body corporate, leasebacks, mortgages, maintenance levies and more.
- Leasehold – registered on the title for the whole village.
- Loan & licence agreements – not registered against the land title
- Shareholder & company title – share ownership providing the right to live in a nominated unit
Again, being thoroughly cognisant of the nature of the legal interest you will buy in a Village is essential. Read every word and seek legal advice from a solicitor with experience in this area. Consider just as carefully what happens when you leave as well as when you enter, including the implications for those managing your estate.
Residence Agreements for Retirement Villages
A Public Information Document forms part of the Residence Agreement and will spell out:
- exit fees
- communal facilities available
- resident age limits
- contributions for general service charges and the basis of service charge increases
- these charges are payable throughout your tenure
- many increases are limited to CPI, but may be varied when a set percentage of residents agree to those changes. Increases over which the operator has no control e.g. rates insurance, taxes, are not limited to CPI.
- individual residents are responsible for personal consumption costs such as personal liability & contents insurance, electricity, gas, water & phone.
- fees for maintenance and capital reserve/replacement funds are payable throughout your tenure – additional costs may be incurred where residents request capital improvements or if damage is caused by a particular resident
- repair or replacement of assets like air conditioners and hot water units may, depending on the Residents Agreement, be paid for by individual residents.
- the agreement should also specify operator insurances and your insurance liabilities as a resident
- the dispute resolution process – make sure you understand this
- process for terminating residential agreement – actual resale arrangements will vary between Villages and should be well understood on entry. This can be critical as there are many stories about owners not being able to dispose of a property due to village rules regarding who can sell the property and under what conditions.
In addition to details above, the Residence Agreement will contain information on your resale rights, exit fees, payment from the operator of the exit entitlement, and termination of the agreement.
Again, let me state that whether you plan to leave any part of your Village investment in your estate, or use it to enable you to fund your next accommodation, it is imperative that you know exactly what the Termination/Exit provisions are, and any variables that may impact your ability to exercise your options.
General obligations on your behalf as a resident relate to:
- ensuring the peace, comfort and privacy of other residents
- the ability of village workers to fulfil their duties free of intimidation bullying or harassment
- not negatively impacting the health and safety of village workers
Village operators are similarly obligated to residents including, most importantly, not interfering with the autonomy of residents exercising their rights over personal, financial or other matters and their personal possessions. They are also obliged to respond to residents’ correspondence within a defined timeframe.
Be aware that operators do have the discretion to act in an emergency where residents may be at risk or to effect urgent maintenance.
Retirement Village operators are free to set the ingoing contribution payable by residents; similarly operators are free to set the basis and amount of exit fees. Both incoming and outgoing fees vary extensively between facilities. Again, gaining a clear understanding of how this will affect you is very important.
The resale process has many of the same elements as the usual real estate selling processes. How this process occurs can vary widely in a Village is based on terms and conditions such as who is entitled to sell, time and limitations and offsetting exit fees legitimately chargeable by the Village operator. Herein lies a potential minefield that cannot be explained by any generalisations, but which needs to be sorted out before that time arrives, and preferably before any commitment to buy into a particular Retirement Village.
Be aware of any state legislation which might apply regarding mandated buybacks for retirement villages. Queensland has just enacted new legislation (April 2019); Queenslanders who “terminate their right” to reside in a retirement village will be paid for their homes after 18 months – even if it’s not yet sold – under new laws introduced by the State Government.
This compares with the new NSW’s buyback period of six months (metropolitan areas) and 12 months (regional areas).
Final thoughts on retirement villages and manufactured home communities
Assuming that you have taken good care to fully apprise yourself of the rules and regulations that apply to your imminent purchase, do make sure you also attend to your personal legal responsibilities. Make sure your will is updated to reflect your new purchase and yes do update Centrelink if applicable to your situation.
If you are considering pooling your resources to purchase your new home, make sure you fully document any agreed joint ownership arrangements and clarify those through your will.
At a time in our lives when we’d really like things to become more simple, both the options above definitely aren’t, but they can be great options if you have done your homework.
Have you or your family or friends been through this process and how was the experience? Would you take either of these paths?