Unfair terms and conditions ruining residents’ golden years

Consumer NZ is joining the Retirement Village Residents Association’s call for urgent changes to legislation to better protect residents from unfair terms and conditions.

“Retirement villages promise the good life in your golden years,” Consumer NZ Chief Executive Jon Duffy said. “However, the agreements consumers must sign before they move into a village can be heavily weighted in favour of the village, and can also have a nasty financial sting if your circumstances change and you need to vacate the property.”

A recently widowed 80-year-old contacted Consumer when she was left in financial limbo, still paying fees for a unit in a retirement village which she left almost a year ago.

Mary* and her husband moved into the retirement village in September 2020. However, shortly after moving in, Mary’s husband was diagnosed with terminal cancer. He needed to be moved to a different facility that provided hospital-level care.

Mary couldn’t afford to continue to pay the weekly fees at the village and for her husband’s hospital-level care so, in September 2021, she advised the village operator she needed to vacate the unit.

When a resident moves into a retirement village they usually sign an Occupation Right Agreement (ORA). This gives the resident a licence to occupy a unit, but no ownership or tenancy rights. The ORA also sets out payment and other terms governing the arrangement.

The ORA requires residents to pay a lump sum – usually anywhere from $200,000 to more than $1.5 million - for the licence to occupy their unit. They also have to pay a fee, usually weekly, to cover operating costs.

When a resident leaves the village, they don’t usually get any of their lump sum payment back until the licence for the vacant property is resold to someone else. The retirement village retains around 20-30% of the resident’s initial investment. This is commonly known as a Deferred Management Fee (DMF).

However, as Mary discovered, it can take an excessively long time to get your lump sum back from the village. And during that time, residents are often liable to continue paying operating costs, even when they are not living at the village.

Mary moved out in November 2021, at the end of her two months’ notice period. Since then, Mary has racked up thousands of dollars in fees which will be deducted from her lump sum once her unit is eventually sold.

Nigel Matthews from the Retirement Village Residents Association (RVRANZ) said: “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.”

Despite the wording of the ORA clearly stating the 7.5% per annum DMF continues to accrue until Mary’s unit has been relicensed, the village insisted, in a statement to Consumer NZ, that her DMF does not continue to accrue.

Sadly, there are many more retirees in Mary’s situation.

Last year the RVRANZ presented a petition to Parliament, 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 to see any resident’s capital returned within 28 days of leaving a village, or upon resale of the unit – whichever comes first. Consumer made a submission to the Parliamentary Select Committee in support of this petition.

Consumer believes a resident, or their estate, should be entitled to their exit payment within a reasonable period after vacating the unit, irrespective of how long it takes to find a new resident for the unit. This would incentivise the village operator to only refurbish where necessary and to find a new resident as soon as possible.

“It’s not right that residents have to wait for operators to relicense a unit before getting their money back,” Duffy said. “The retirement village has their money, and may have had the use of it for some years. The resident doesn’t own the unit and has no control over the relicensing or refurbishment process.”

Following the death of her husband earlier this year, Mary lodged a formal complaint about the village, alleging failures to market the villa and failures to consult with her – which is required under the Retirement Villages Code of Practice and her ORA.

RVRANZ president Brian Peat 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, such as Mary, so consumers are protected. Consumer supports this, as well as a review of the legislation and the Code of Practice.

Residents who have ORAs with unfair terms should complain to the Commerce Commission. As Mary says, “it’s just not fair”.

“It’s got to be fairer – it’s not the way things should be at this stage of our lives.”

*Mary's name has been changed for privacy reasons.