The residential village industry is in for an overhaul. 

A package of reforms has been introduced to combat ‘unfair contract terms’ in occupation right agreements that are proving costly for many residents.

An occupation right agreement is the formal document you sign to ‘buy’ your unit at a retirement village and gives you a right to occupy a unit. That means you’re purchasing the right to live in a unit during your lifetime but without taking ownership of the property itself. 

The purchase price is repaid to you after you leave the unit or die, less a management fee which is automatically deducted each year from the purchase price. There are also additional weekly fees and care costs. 

One area of concern is that each village can set its own rules and include these in its occupation right agreements. Currently, anyone looking to sign up to a residential village is required to get independent legal advice before they sign an agreement.

The key reforms include:

• ‘Unfair’ clauses to be removed from occupation right agreements. 
• Interest to be paid to former residents for capital held if their unit does not sell within nine months. 
• Weekly fees cannot be charged if a contract is terminated or the resident leaves. 
• Better support for residents moving into another facility. This includes the villages lending money to departing residents to cover care costs until their capital is returned. 
• Clarification about who is responsible for the maintenance of chattels.
• Management fees cannot be deducted once you’ve left the unit. 

The Residential Villages Association represents 95 percent of all villages in New Zealand and has voluntarily adopted the reforms to trial over the next 12 months. While it accepts some reforms are needed, it is reserving judgment believing there may be some unintended consequences.

With one million Kiwis expected to reach the age of 65+ by 2028, the outcome will not only affect those in retirement villages, but their families as well.