Understanding retirement contracts and village ownership

 For many Australians, retirement means a change in their pace of life. This may come with the decision to downsize your home with the option of moving into a retirement or lifestyle village.

 When looking at properties in these villages, there are a few main types of contracts you can choose from.

 Leasehold arrangements

 With a leasehold agreement you don't actually own the property, but you sign a long-term lease (often set at 99 years). As well as rent payments, you normally have to pay maintenance costs for the upkeep of common areas.

 When you want to move or end the lease, you'll normally have two options. You might simply pay a fee to leave – sometimes a substantial amount – or you may have the right to sell your lease to another interested party. 

 Loan and licence arrangements

 Although rare, you may find loan and licence arrangements made available to you through a not-for-profit organisation, often a religious body.

 In these cases, you do not own the property, but you pay a contribution when you move into the property and you are granted a non-interest loan that you pay off while you live there.

 Often there are other costs associated with living in this kind of agreement, which help with the upkeep of the grounds.

 Strata or community schemes

 With strata schemes, as well as buying a property directly from the owner, you also sign a contract with management. This agreement means you have to pay corporation fees as well as maintenance costs. Depending on the agreement, you may also have to share the proceeds of a sale.

 When you're in a strata agreement, there may also be restrictions on modifications you can make to your property. Although you own the property, you do not own the external walls, floor or roof. This means that the strata covers maintenance and repair, but you can't make alterations to them. 

 Rental agreements

 There are two types of rental agreement available with retirement and lifestyle villages. One is simply that you pay rent to live in a property, much like you would through a real estate agency.

 The other type is where you buy the home itself, but you pay rent on the land that it sits on. Other than the rent, there are normally no other fees – no administration or maintenance costs – which can be beneficial.

 In most cases, villages that offer rental agreements still come with many of the benefits of other agreements, such as common areas, facilities (such as pools or BBQ areas) for use and garden maintenance.

 When you sell your property, you can either use a real estate agent or the village management, and there are no deferred fees that bite into your profits.

 Registered interest holders and non-registered interest holders

 Everyone who lives in a lifestyle or retirement village is either a registered or non-registered interest holder.

 Registered licence holders:

• Own a property (perhaps through a strata scheme)
• Own shares in a property
• Hold a long-term lease (more than 50 years, with certain requirements)

 Non-registered licence holders:

• Rent a property
• Have a loan/licence agreement
• Hold a lease (less than 50 years)

 The main differences are that registered licence holders tend to pay higher ongoing costs for their property, but they also have a larger degree of independence in how they can treat their property.

 Find out more about downsizing

 If you're looking into your retirement options and you want to know more about the ins and outs of downsizing your home, download our free ebook Downsizing your home: selling and downsizing tips for seniors.