On Friday Stockland, the second largest provider of retirement housing, settled on the sale of their 58 Retirement Villages for almost $1bn to private equity company EQT. But they are not leaving the retirement housing sector, they are partnering with international property giant Mitsubishi Estate Asia to grow their portfolio of Land Lease Communities with an estimated pipeline of $5bn.

Land Lease Communities, once the poor cousin to retirement villages, have come a long way with many new communities resembling a 5 star resort. The modern, spacious homes with alfresco dining, home offices and 6 star energy ratings bear no resemblance to the demountable cabins alongside a caravan park.

So, what’s the difference between a retirement village and a land lease community?

Well, it’s all about the contract. In a retirement village your contract is typically a leasehold or licence arrangement for your home and the land on which it sits. In a land lease community your contract has two parts: to buy the home and have a leasehold over the land. The leasehold is normally long term, 50 or 99 years or perpetual. As a general rule you don’t pay stamp duty on your purchase in a retirement village (unless it’s strata) or land lease community.

Whether you live in a retirement village or land lease community there is a weekly or monthly fee, in retirement villages it is often called a “general service charge” in land lease communities it’s called “site fees”. It is not uncommon for Land Lease Community site fees to be higher than the general service charge of a Retirement Village. This is because the general service charge is similar to an owner’s corporation where a budget of expenses is prepared, the residents have input and the fees are levied on a cost recovery basis whereas Land Lease Communities set a market price and can profit from the site fees.

The unique ownership structure of land lease communities means that if you receive the Age pension you can normally claim rent assistance based on the site fees, even though you are a homeowner. In a retirement village you normally don’t qualify for rent assistance unless the amount you have paid is under $224,500.

When it comes to leaving there are big differences too. In a retirement village an exit fee and sharing capital gain/loss and selling fees is the norm whereas land lease communities typically don’t charge an exit fee (but some do) the resident pays all the selling costs and get all of the capital gain or loss. 

In a retirement village your ongoing fees will normally stop shortly after you leave, in a land lease community they continue until your home is sold and therein lies another big difference – retirement villages will often give you a guaranteed buyback anything between 6 and 18 months is typical but it could be as short as 90 days, whereas there is no buyback in a land lease community.

Land lease communities are growing in popularity as they are offering low maintenance accommodation with lifestyle amenities on financial terms that downsizers are looking for.

It’s not that land lease communities are necessarily better than retirement villages, they are just different. Whether you are thinking about downsizing to a retirement village or a land lease community it’s vital to make sure that your contract has the right balance of rights, responsibilities and costs – while you live there and after you leave.