Retirement Village Occupation Right Agreement – What does it all mean?

3 August, 2022 | Carolyn Ranson

Over half of New Zealand retirement villages offer potential residents an occupation right agreement as the legal title for their unit, villa or apartment.  But what is an occupation right agreement?  Also known as an licence to occupy or occupation licence, these forms of occupation are very different from standard property ownership.  It is important you fully understand the agreement before you sign.

How does ownership of a licence differ from normal property ownership?

An Occupation Licence is a personal right only. You do not own the property and it remains the property of the Village. Instead, you receive a contractual right to occupy that particular dwelling. That right is protected by the Statutory Supervisor of the Village on your behalf. Unlike normal property ownership, you are not usually able to register a mortgage or a caveat against the certificate of title and your name will not appear on it.

Your name will be recorded in the Occupation Right Agreement. Some Villages allow for the purchase of the Occupation Right in the name of the family trust. Most take the view that this is a personal right only and cannot be owned by a Trust.

Unlike a usual residential property purchase, you are usually not entitled to any capital gain from the resale of the property after termination. However, you may be liable for any capital loss.

Financial considerations

If your main assets are owned by your Family Trust, it is likely the Trust will have to advance money to you to complete the purchase. This might be in the form of a distribution or a loan. It is important that this is documented.

The full purchase price (sometimes referred to as a capital payment) usually includes a Membership Fee or Deferred Management Fee or Amenities Fee of between 20% or 30% of the full purchase price.

This Fee amortises (or depreciates) over 3 or 4 years on a pro-rata basis. For example, if the period specified is 3 years and you leave the Village within that 3 years, a portion of this will be refunded. But if you leave the Village after 3 years, it will have fully depreciated and the amount you will receive back upon termination of the Occupation Right Agreement will be the full purchase price you paid less the full Fee (between 20% and 30%).

Other payments you may be required to make include:

  • A Village Outgoings payment is usually payable monthly and is often subject to cost increases over time. Sometimes however, the payment is fixed from the time you sign the agreement. The obligation to pay this fee may cease when you vacate the dwelling or it might continue for, say, 6 months or until resale;
  • Other costs such as medical care, hairdressing services, cleaning services and any other services which you may elect to utilise and pay for on a user pays basis, at the going rate;
  • Any utility charges relating to your Unit such as electricity, gas, telephone/tolls etc not included in Village Fee;
  • Administration charges where goods or services supplied are charged through the Village;
  • Some Villages also charge further fees on the termination of the Occupation Right. This might be in the form of a set amount or a further percentage of the original purchase price. There may also be refurbishment costs.

What happens if there is a Natural Disaster?

A topical subject in view of recent events in New Zealand is the situation you may find yourself in if the dwelling is damaged by fire, earthquake or storm etc. The Village is not usually obligated to expend any more money to reinstate than it receives under its insurance.

If the money received is not deemed to be adequate or the Village decides not to rebuild then they will usually terminate the Occupation Right Agreement. Village operators differ as to whether the Membership Fee portion of the original Entry Payment will not be deducted for the repayment amount.

Alternative accommodation, while the Unit is being reinstated, may be at your cost or the cost of the Village.

In any event, if such an event occurred, and the Village is not rebuilt, your ability to purchase a replacement dwelling elsewhere may be compromised. This is especially the case in a rising market.

Your Occupation Rights and Obligations

In addition to the obvious right to live in your unit, other rights and obligations under the Occupation Right Agreement should be carefully considered and understood. These might include:

  1. Whether you can:
    • have friends or relatives stay in the Unit;
    • make any alterations or additions to the Unit;
    • sublet the Unit;
    • have any say regarding the resale or marketing of the unit or
    • keep a pet.
  2. Your obligations in respect of the interior of the dwelling and whether you are responsible for the cost of repairs and maintenance, and for the full cost of refurbishment on termination.
  3. Your insurance obligations.
  4. Any Village Rules (including parking rules) and/or Codes of Conduct.

Can You Transfer?

Further down the track you might want to transfer to another dwelling within the Village, such as a serviced apartment. In this case, you will usually have to terminate your existing Occupation Right Agreement, as if you were leaving the Village. The amount that is repaid to you will be put towards the amount you will be required to pay for the new dwelling, which will be at the current market price at that time.

A major consideration will be whether the amount returned to you is going to be enough to purchase the new dwelling, especially if the market price of dwellings in the Village increases. This might depend on whether you will be required to pay a further Membership Fee.

Wills and Enduring Powers of Attorney

It is a usual requirement for obvious reasons that you have current Enduring Powers of Attorney and a valid Will in place as a condition of entrance to the Village. An elder law specialist will be able to prepare these documents for you.

If you are looking to move into a retirement village or complex, contact elder law specialist, Carolyn Ranson’s Personal Assistant, Suzanne Sumner by phone 09 837 6840 or email to set up an appointment.

Are you thinking about buying a place in a retirement village complex?

Make sure you make the right decision for you — contact our retirement village expert, Carolyn Ranson today.

email Carolyn
+64 9 837 6840

About the author

An experienced employment, estate litigation and elder law lawyer, Carolyn completed her law degree at City University, London in 1996. She was in house legal counsel for a large retirement village operator, before entering private practice in 2000. She joined
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