Moving Into a Retirement Village: What You Should Know Before Signing an Agreement

Making the decision to move into a retirement village is an exciting life milestone. It often promises a strong sense of community, freedom from home maintenance, and the security of having care available if your health changes.

However, the legal and financial reality of moving into a retirement village is vastly different from buying a standard residential property. It is not a traditional real estate investment. Instead, it is a lifestyle choice governed by complex contracts and specific legislation.

Before you pack up your family home and sign on the dotted line, here are the crucial legal and financial realities you need to understand about retirement villages in New Zealand.

1. You Are Buying a Lifestyle, Not Real Estate

When you “buy” a unit or villa in a retirement village, you are usually not buying the building or the land it sits on. Instead, you are purchasing an Occupation Right Agreement (ORA), which typically grants you a “Licence to Occupy”.

This is a fundamental difference that catches many people off guard. Because you do not hold the title to the property, the rules are very different from standard homeownership:

• You cannot mortgage the unit to free up cash.

• You cannot rent the unit out to someone else.

• You cannot leave the unit to your children in your will.

• You usually cannot make alterations or renovations without the village operator’s explicit permission.

Your initial lump-sum payment simply buys you the legal right to live in that specific unit for the rest of your life or until your health requires a move to a higher level of care.

2. The True Cost of Leaving: The Deferred Management Fee

One of the most important financial aspects of a retirement village is what happens to your money when you leave or pass away.

When you vacate the unit, you will not receive your full initial purchase price back. The village operator will deduct a Deferred Management Fee (DMF), which is sometimes called an exit fee, amenities fee, or village contribution.

The DMF covers the long-term maintenance of the village and the cost of refurbishing your unit for the next resident. Here is how it typically works:

• The Percentage: The DMF is usually capped between 20% and 30% of your initial purchase price.

• The Accrual: This fee generally accrues over the first three to five years of your residency. For example, it might accrue at 10% per year until it hits a 30% cap in year three.

• No Capital Gains: In most New Zealand retirement villages, you do not share in any capital gain. If your unit is resold for a much higher price than you paid, the village operator keeps the profit. You receive your original purchase price minus the DMF.

3. Ongoing Weekly Fees

While living in the village, you will pay a weekly or monthly fee to cover shared operating costs like rates, building insurance, lawn maintenance, and security.

When reviewing your ORA, it is vital to ask two specific questions about these fees:

• Are the fees fixed? Some villages fix their weekly fees for life, while others increase them annually in line with inflation or the New Zealand superannuation rate.

• Do they stop when you leave? If you move out or pass away, some villages stop charging the weekly fee immediately. Others will continue to charge your estate until a new resident is found and the unit is relicensed, which can take months.

4. The Rules of the Village

Every village has its own specific set of rules that you must agree to follow. These can dictate everyday lifestyle choices that you might have previously taken for granted.

Your ORA will outline policies on whether you are allowed to bring your pet, how long family members can come and stay with you, and where visitors are allowed to park. Understanding these rules upfront prevents frustration down the track and ensures the village culture aligns with your lifestyle.

5. Your Safety Net: Mandatory Legal Advice and the Cooling-Off Period

Because Occupation Right Agreements are complex and heavily favour the village operator, the Retirement Villages Act 2003 requires all intending residents to receive independent legal advice.

You cannot legally move into a retirement village without a lawyer explaining the ORA to you and signing a certificate confirming that you understand your rights, the costs, and the implications of the agreement.

Furthermore, New Zealand law provides a mandatory 15-working-day cooling-off period after you sign the ORA. If you change your mind during this time, you can cancel the agreement without any financial penalty.

Get Expert Advice Before You Sign

Moving into a retirement village is often the last major financial transaction you will make. Getting it right ensures your retirement savings are protected and your future is secure.

Do not let the excitement of a new community rush you into signing a contract you do not fully understand. The experienced legal team at Senior Law Nelson specialises in reviewing Occupation Right Agreements. We will translate the legal jargon, highlight any hidden costs, and ensure you are making a fully informed decision.

Ready to review your retirement village contract? Contact Senior Law Nelson today to book a consultation and protect your hard-earned legacy.