What is a Life Right and what are its advantages?
Category Advice
INTRODUCTION
Deciding that it is time to secure accommodation in a retirement complex is a critical step for many people. Once the decision is made, however, it is then difficult to decide upon which ownership model to consider (i.e. life right, freehold, sectional title or share‐block). There is a need for a Life Rights explanation and the desirability of a life right purchase as a retirement investment.
Global View of Life Rights
Life Rights is a widely practiced and requested retirement model worldwide. The USA is the world market leader for retirement villages. The most common type of sale is based upon the Life Plan model, the same as the South African Life Rights system. In Australia, it is rare for a retirement village operator to sell the title of a unit. The most widely accepted model is the License to Occupy (life right) scheme. New Zealand retirement developments follow the same. 80% of residents in a retirement village have a Licence to Occupy agreement. The UK is facing a shift towards private retirement villages. Developers generally use the Life Time Lease model. In Europe, the Apartments for Life ('levensloopbestendige' units), sold on a life rights basis are increasing in popularity across Europe. Life Rights is hence a widely practiced and well recognized retirement scheme worldwide.
South Africa Life Rights as a legal right:
A Life Right is the purchase of the right to live in a specific unit. It is a real right, giving one the security of tenure for the remainder of one’s life. The Life Rights Scheme has been officially recognized by the Housing Development Schemes for Retired Persons Act of 1988.
A huge advantage of Life Rights is that no special levies can be raised in respect of maintenance of the Complex and there are no transfer duties or VAT payable on Life Rights as the Purchaser does not get the title deeds.
What should a quality and sound life right contract include?
Complexes differ in terms of what they offer; therefore a potential purchaser should ensure all of the following four features are incorporated in the contract.
1) Security of Tenure
This is the foundation of a Life Right, but should not be the only item addressed in the contract. Should a life right owner fall into financial hardship, he cannot be expropriated from his accommodation.
2) Physical Security:
A Life Right should also buy the retiree physical security. In terms of the standards of complex security measures the following items must be transparent and detailed in the agreement, e.g. electric fencing, 24 hour guards, CCTV cameras, panic buttons and emergency armed response.
3) Health Security:
A Life Rights contract must be clear regarding health care available in your unit, prior to moving to frail care. Do the units have a nurse call facility and 24 hour emergency care? A purchaser should investigate whether there is a frail care facility within the Complex, as having to move later in life, when frail care becomes a necessity is traumatic. Frail care rooms are often in short supply and outsiders pay a higher frail care rental than residents.
4) Financial Security:
The Life Right contract must be transparent in terms of disclosing the yearly levy escalation costs. This allows for reliable financial planning in your retirement years. In addition, should a life right owner fall into financial hardship, any levies not able to be paid, can be recouped from the resale of the unit.
The developer remains the sole owner of each unit and carries the responsibility of maintenance and the upkeep of the complex and its facilities (including frail care if offered). This relationship ensures that the frail care and communal facilities will be kept operational and maintained at a high standard. In the instance of badly managed frail care units, where the frail care is not economically viable and closed down, buyers become the losers. After paying a premium on the purchase price due to the frail care facility, their properties are worth a lot less when the frail care is closed down.
Although greatly misunderstood Life Rights are an excellent option when purchasing a retirement home and offer the joy of usage without the burdn of ownership.
Author: Mark McAlpine