Retirement village resident left in financial limbo, paying fees for a unit she left 10 months ago

After a year of waiting, the woman, who we have agreed to call Mary, has now filed a formal complaint against the village operator. It still hasn’t paid her exit fee and has continued to charge her weekly fees, despite the fact she moved out last November.

In September 2020, Mary and her husband paid $790,000 for the right to live in the two-bedroom villa at a small retirement village in the North Island. Two months after moving in, her husband was diagnosed with terminal cancer and in mid-2021 he had to move to hospital-level care at a different facility.

When you move into a retirement village, usually you sign an Occupation Right Agreement (ORA), which gives you a licence to occupy the unit but no ownership rights to the property. The ORA also sets out what you can and cannot do as a resident.

In addition to paying a lump sum for this licence to occupy, you also have to pay a fee – usually weekly – to cover operating costs.

When you leave the village, in many cases, you won’t get back any of your lump sum payment until the operator has resold the licence for the property to someone else. The village retains around 20-30% of your initial investment. This is commonly known as a Deferred Management Fee (DMF).

In September 2021, Mary gave notice to the operator of her village that she needed to terminate her ORA as she could not afford to pay her weekly fees on top of the fees for her husband’s hospital-level care. She was required to give two months’ notice under her ORA, so she moved out in early November.

She expected her villa would be put on the market by the operator immediately, especially given the urgency of her situation and the fact she’d only been in it for a year, so there was very little refurbishment needed.

But more than a year on, the villa remains unsold. Two newly built villas were also marketed after Mary moved out and one was sold.

Not only has Mary not seen a cent, but she is racking up thousands of dollars in fees that will be deducted from her final payment once the villa is sold. This includes the $200 a week in operating costs for rates, insurance, general maintenance, gardening and activity costs at the village. Under her ORA, she still has to pay these operating costs, even though she no longer lives there, but they must be reduced by 50% after six months.

Her ORA also states that her DMF will continue to accrue. This is 7.5% of the purchase price of the villa per year over four years (up to 30% in total). So under the terms of the ORA, Mary is liable for more than $5400 per month in accrued DMF and weekly fees* while she waits for the operator to sell the licence to her unit.

Mary said the situation has been devastating. She said when she first told the operator of her intention to move out and the circumstances behind her decision, all she got was a formal letter in her mailbox – which felt more like an eviction notice.

“I was dealing with a dying husband, I was trying to pack. I came home from the hospital and opened this letter and it was so cold, it dropped me.” Mary burst into tears as she shared this story.

She moved in with her daughter and was focused on being with her husband as much as possible. In the first few months her villa did not appear to be marketed at all, she told Consumer NZ. Three months later when she and her daughter drove by, they noticed there was still a sold sign displayed for her unit just outside the village – the sign was from when she’d bought it more than a year before.

“Then I found out that she [the village manager] was using the garage of my villa to store equipment for the workers building the new villas,” Mary said.

She found dealing with the village operator so stressful and upsetting, she asked her lawyers to speak to the operator on her behalf.

Nigel Matthews from the Retirement Village Residents Association (RVRANZ) said in most villages the accrual of the DMF will stop when the resident leaves. But in Mary’s case, there is a clause in her contract which states that the fee will continue to be accrued until the maximum period (four years in Mary’s case) or at the repayment date (when a new person has signed an ORA and paid for the unit).

“This village has a vested interest in NOT selling this villa, as they are still making money from it – from the DMF and the weekly fees,” he said. “There is no incentive to sell if the fees are still being charged.”

Despite the wording of the ORA clearly stating the DMF continues to accrue until Mary’s unit has been relicensed, the village insisted, in a statement to Consumer, that the DMF does not continue to accrue.

While this is good news for Mary, Matthews said this case is just the tip of the iceberg and there are many more in a similar situation. The RVRANZ presented a petition to Parliament last year requesting an urgent review of the Retirement Villages Act, and the Code of Practice to address what it calls the imbalance between operators and residents. It wants any resident’s capital returned within 28 days of leaving a village, or upon resale of the unit – whichever comes first.

In August, RVRANZ spoke to Parliament’s Social Services and Community Committee to outline the changes it is calling for. Consumer also made a submission in support of the RVRANZ petition that said: In our view, a resident (or their estate) should be entitled to their exit payment soon after vacating the unit, irrespective of the amount of time it takes to find a new resident for the unit. This would incentivise the operator to only refurbish the unit if necessary and to find a new resident for the unit as soon as possible.

The Retirement Villages Association (RVA), which represents around 95% of all registered villages in New Zealand, also made a submission to the select committee, arguing strongly against the petition. It said the 28-day buy-back scheme would result in higher costs for residents and have significant financial implications for big and small retirement village operators, in particular in regional New Zealand. Its submission also argued that these changes would restrict the future development of villages and the funding of new aged-care facilities, placing a greater burden on the health system.

Mary’s formal complaint

Mary’s husband died earlier this year. She lodged her formal complaint against the village in late August, claiming the operator failed to start the marketing process for the villa immediately and failed to consult with her throughout the process as required under the Retirement Villages Code of Practice and her ORA. The complaint also said the operator gave preference to marketing a brand-new unit, rather than Mary’s one.

The complaint also claims Mary suffered monetary losses of almost $60,000 in accrued DMF and more than $800 per month in operating costs. It requested the immediate cancellation of the ORA and repayment of the exit fee within five days. It also outlined the impact on her personally.

“My overall health has deteriorated, and I am currently in a very frail state of mind because of the challenging situation. I have endured much stress and worry as a result of the delay of the sale and my current financial strain, whilst also grieving the loss of my husband.”

Mary has not received the money, and the village manager responded to the complaint via email: “I’m so sorry you felt it necessary to present a formal complaint without first requesting a meeting to discuss matters in person. I have always been available and have your best interests at heart throughout this unfortunate, drawn-out process.”

In a statement emailed to Consumer, the village said: “We have one unit that has been vacant for resale for a period. We acknowledge it would be stressful for any exiting resident to be delayed. That said, we have obtained four separate conditional contracts for sale on the unit, three of those have not proceeded. Two of the contracts were unable to be declared unconditional, due to the intended residents being unable to sell their current home. It may be the slowdown in the housing market is having a detrimental flow-on effect for us. We do, however, have another conditional contract in hand at present. We hope the current contract will become unconditional to enable the sale to be completed.”

The statement also noted that the exiting resident of this vacant unit has made a formal complaint. “We understand the complainant’s frustration and welcome the complaints process to enable us to respond and give balance to the complaint.”

The RVA is aware of this case and sent us a statement saying it has been assured by the operator of the village that they are doing everything they can to relicense the unit. John Collyns, the RVA’s executive director, said the Retirement Villages (General) Regulations 2006 (section 11) specifically prohibits an operator promoting new units over existing ones, and the RVA is comfortable with that provision.

“An extended relicensing time is relatively rare in the retirement villages sector,” the statement said. “An independent survey last year showed the overall average time village operators took to repay former residents or their estates their net capital sum is just four months; 77% of units relicensed were within six months and a further 14% within a further three months. Just 9%, or 283 units, took nine months or more.”

At its recent annual general meeting, the RVA decided to trial a new requirement that villages with more than 50 units have to pay interest on any capital owed to a former resident if they have not been repaid within nine months of leaving a unit. This wouldn’t apply to the village in Mary’s situation because it has fewer than 50 units.

Collyns said that’s because smaller, charitable and family-owned villages are more vulnerable to tough real estate markets in which homes take longer to sell.

“Some smaller villages in the regions may face insolvency if they were forced to relicense units and pay departing residents or their estates a capital sum within a mandatory time frame. No one wants that.”

The RVA has suggested its members consider their overall charges to ensure these are sufficient to allow fees to stop when the unit is vacated, and for paying interest for sales taking longer than nine months. Collyns also pointed out that many operators don’t charge any fees after a resident has left, and under recent changes most have been asked to stop charging all fees once a retirement village unit is terminated and vacated.

But that does nothing to help those in a situation like Mary’s.

RVRANZ president Brian Peat challenges the argument about the impact of the housing market slowdown.

“These operators are not vulnerable,” he said. “These are commercial businesses and organisations that hang on to the money of vulnerable residents long after they’ve exited,” he said.

“Operators need to stop using the Bank of Grandma and Grandad to fund their operations or other activities and start treating these residents with the respect and dignity they deserve."   

The RVRANZ wants the Commerce Commission to investigate the use of unfair terms and their impact on residents like Mary, so that consumers are protected.

Consumer supports this. We also support a review of the legislation and the Code of Practice. In the meantime, we encourage any residents who have ORAs with unfair terms to complain about those terms to the Commerce Commission.

Mary is hopeful by speaking out about her situation, something will be done to protect retirees like her.

“It’s just not fair. They have all the money, all the cards in their hand, all the power. It’s got to be fairer – it’s not the way things should be at this stage of our lives.”

Select Committee submission in support of the petition to address the imbalances between retirement village residents and operators

Consumer NZ CEO Jon Duffy and Consumer Advocate Aneleise Gawn spoke at the Social Services and Community Parliamentary Committee in support of the Retirement Village Residents Association's petition to address the imbalances between retirement village residents and operators. Watch the submission below: