Last month, we looked at granny flat rights and examined the different legal and financial arrangements that people enter into when the need for aged care arises. This article examines retirement communities – retirement villages (RVs) and demountable home parks (DHPs).
Demountable home parks (also known as manufactured home parks)
DHPs are generally classified into two groups: those that originated from caravan parks for tourist accommodation and also offer permanent sites (often in a distinct area) and those that are purpose-built villages or communities marketed to retirees. While they operate under Caravan Park and Demountable Home Park legislation, they are often called things like ‘Over 55’s Community’, ‘Retirement Resort’ or ‘Lifestyle Village’.
DHPs built for the retiree market have the look and feel of a bricks and mortar retirement village with communal facilities such as swimming pools, bowling greens, tennis courts etc. They normally have bigger units, with the majority being two- or three-bedroom units and very few single-bedroom units. The units themselves can be hard to pick as demountable, particularly when there is a garden surrounding them and they come with all the ‘mod cons’.
The key difference between a DHP and a RV is that the loan, licence or lease arrangement is over the land, not the building. This poses a unique set of circumstances for people living in these communities making residents both a homeowner and a tenant at the same time. Traditionally, there have been no entry or exit fees, however, some of the new communities do charge an exit fee.
Commonwealth rent assistance and DHPs
Due to the nature of ownership within a DHP, i.e. you own the home but rent the land (often called ‘site fees’), rent assistance is often payable to residents of these communities who are pensioners.
Here’s how the rent assistance is calculated:
Firstly, the rent (site fees) must be above the minimum threshold for rent assistance to be payable. The minimum thresholds are: $113.20 per fortnight for singles and $184.20 for couples (different thresholds apply to couples separated due to illness or share arrangements). Rent assistance is paid at 75% of the rent above this threshold, up to the maximum of $127.60 per fortnight for singles and $120 for couples.
For example, Shirley is a full age pensioner living in an Over 55’s Community. She pays site fees of $120 per week to the community manager. Her rent assistance will be calculated as:
Rent paid $240 per fortnight (pfn)
minus threshold $113.20 pfn
excess $126.80
x 75% = $95.10
Shirley’s rent assistance would be $95.10 pfn. For Shirley to receive the maximum rent assistance of $127.60 pfn her rent would need to be at least $283 pfn.
One of the main concerns for residents of DHPs is increases in site fees (rent). The leases offered vary from one to the next and one resident to another. While the lease will indicate the rate at which the rent will be increased during the period of the lease (e.g. CPI) for those with shorter leases their expiry can bring uncertainty about the affordability of the new lease.
Retirement villages
RVs operate under the relevant state or territory legislation which typically sets a minimum age of 55. This legislation generally provides a definition of what is and isn’t considered to be an RV, sets out what legal documents (including disclosures) are required to be provided to residents by the village operator, regulates some (not all) financial arrangements and provides framework for the resolution of disputes.
There are many different forms of ownership with RVs, including freehold or strata title, company title, leasehold, licence and some operate under a rental model. The most common ownership model is a 99-year (or lifetime) leasehold or licence.
The costs associated with living in a RV can be summarised as: the entry cost, the ongoing cost and the exit cost.
1. Entry cost – This is the price paid to gain possession of the unit. This will be either the purchase price if it is strata or company title, or the amount of the interest-free loan you make to the developer if it is a lease or licence arrangement. The amount you pay determines if Centrelink or the Department of Veteran Affairs consider you to be a homeowner, whether the amount is an assessable asset and your entitlement to rent assistance. Consideration also needs to be given to the impact on pension entitlement itself.
2. Service charges – Irrespective of the method of title held, residents are responsible for the ongoing costs of the village. These include insurance, water rates, general lighting, staff wages, and repairs and maintenance. Of course residents are also responsible for the internal maintenance of their unit, their own utilities and insurance of their personal effects.
Many villages also require outgoing residents to pay the cost of refurbishment of the unit and this will be part of the calculation of the departure fee.
3. Deferred management fee (DMF) – This is the cost that causes the most confusion. There are a number of different ways in which the DMF can be calculated, and in some cases the retirement village operator will give a choice of models. In looking at the models it is important to understand if the DMF will be calculated using the purchase price or the sale price and whether it will be before or after any capital gain sharing.
Availability of care services
The amount of care that can be provided in an RV or DHP will vary from one to another. Traditional retirement communities focus on the lifestyle and activities and want to attract residents that are sociable and physically active. These communities may require that you leave if your health deteriorates as too many people unable to participate or remaining in their units can have a detrimental effect on the experience of the other residents as well as the ability to sell units to new residents. In some circumstances the manager will allow you to have care provided to you in your unit. The manager may organise this for you or leave it up to you to arrange, just as you would in your own home.
At the other end of the scale there are retirement communities that are purpose-built to deliver care. Where it is a condition of entry that you require care the manager will generally assess your needs prior to you moving in to ensure that they can provide the services you need. They will generally co-ordinate the package of services for you and provide you with a price table to help you understand what the cost will be now and what you can expect if your care needs increase. In many cases the care being provided will be through a government-funded care package with the delivery of ‘top up’ services by staff or through private contractors.
Living in a retirement community can provide the company of like-minded people while having access to care and other services that maintain independence. Understanding the legal and financial aspects as well as the ability to have access to care if needed is vitally important.
Rachel Lane is the Principal of Aged Care Gurus and oversees a national network of financial advisers dedicated to providing quality advice to older Australians and their families. Read more about retirement villages and demountable home parks in the book “Aged Care, Who Cares; Where, How and How Much” by Rachel Lane and Noel Whittaker. This article is for general educational purposes and does not address anyone’s specific needs.