State-based law is increasingly moving towards legislated ‘buyback schemes’ being available for people moving out of retirement villages.
Read on to find out what this means for you as well as about different states’ schemes.
What is a ‘buyback’?
In the downsizing world, ‘buyback’ is an unofficial term describing when an operator of a retirement village home buys back a unit from the resident in the situation where the unit hasn’t sold. The more official term usually used in contracts and legislation is that the resident has received their ‘exit entitlement’.
Buybacks can be legislated (required by law) or voluntary (offered by an operator by choice).
Either way, a buyback only comes into effect after a particular time has elapsed since a village resident either moved out or announced that they want to sell. And, various States have different policy approaches to this issue.
What do buybacks mean for downsizers?
The main idea behind buyback schemes is preventing a situation where a retirement village resident is unable to access aged care (or an alternative new living situation) because their assets are tied up in their village unit.
Or, in the instance where a resident has died, that their estate cannot be finalised for an undue length of time due to their retirement village unit remaining unsold.
Buybacks help encourage village operators to actively work together with a resident (or next of kin) to ensure a unit is sold as quickly as possible. Buyback schemes can result in peace of mind for those choosing to move into a retirement village.
Importantly, when it comes to over 50s housing, you’ll currently only find dwelling buybacks in retirement villages - they are not for instance a feature of land lease communities or general apartments or townhouses.
Legislation is State-based, so here is an overview of the current legislation in each of the biggest states. (If you’re not ready to hear specifics, jump ahead to the section below on the main thing you need to know about buybacks).
At this time, Downsizing.com.au is only aware of retirement village dwelling buy back laws in New South Wales, Victoria, Queensland and South Australia.
However, irrespective of which State you’re in, it’s a good idea to check with the operator and your legal advisor about the buyback situation and options, before you purchase a dwelling.
New South Wales
A new state law called the Retirement Villages Amendment Act 2020 means that, instead of waiting until their unit is sold, retirement village residents can be paid their exit entitlements if their unit remains unsold and there’s evidence the operator has unreasonably delayed the sale.
This takes effect after six months in metropolitan areas or 12 months in other areas. The clock on this six or 12 month timeline starts ticking 40 days after the resident vacates the property or gives notice they wish to sell.
After the same timelines, if someone needs to move from retirement village living to aged care, their daily aged care accommodation costs can be paid directly to the provider by the retirement village operator (up to the level of 85% of the entitlement).
This act also ensures that, after moving out of a retirement village, a person can only be charged ongoing services fees (for things like gardening and administration) for 42 days.
There are caveats; the law only applies to some, but not all, retirement village dwellings. It doesn’t extend, for instance, to strata or community title schemes or residents covered by shares in a company title or trust village.
FIND OUT MORE: NSW retirement living reforms now in place
The Victorian Government is currently looking at expanding its mandatory retirement village dwelling buyback system.
Residents occupying a retirement village dwelling under a lease or licence arrangement can at present require the operator to re-purchase within six months of leaving.
The government is looking at expanding this system to strata titled dwellings, but in considering this will examine the potential impact on operators’ financial feasibility.
Submissions on the Options Paper closed in May 2021 and there aren’t specified timelines for the next stages of the review as yet.
FIND OUT MORE: Victorian buyback rights may change
Queensland has some of the most far-reaching buyback laws, in place since mid-2019, with amendments made to the Retirement Villages Act 1999.
Despite changes made during 2021 that exempt resident-operated villages, the legislation still applies to the vast majority of retirement villages.
Mandatory exit entitlement repayments need to be made if a unit remains unsold after 18 months.
Additionally, residents can engage their choice of real estate agent if their unit remains unsold after six months.
Operators can seek to extend payment times if they are causing the business financial hardship.
FIND OUT MORE: Queensland changes buyback law
South Australia has legislated mandatory exit entitlement repayments after 18 months. This legislation is called Retirement Villages Act 2016 (SA).
This time frame applies from the date the resident moved out, or the date the resident gave notice to vacate but wishes to remain living in the residence until the unit is sold.
South Australia is currently also reviewing its retirement village laws, with some retirement village residents calling for the buyback provision to be reduced from 18 to six months.
FIND OUT MORE: South Australia retirement village law fact sheet
Operator-specific voluntary buyback schemes
Some retirement village operators also offer additional buyback offers within their contracts.
The Retirement Census, published annually by the Property Council of Australia, tells us that, in 2020, 70 per cent of the 486 villages surveyed reported having a buy back guarantee.
Most of these were voluntary schemes, with 41 per cent of the villages reporting voluntary schemes compared with 29 per cent covered by legislated schemes.
The details of each voluntary scheme will vary between operators and villages and will also be different depending on when a unit is purchased.
It is also important to note that a resident needs to give formal notice before the timelines of any buyback scheme starts. The process of giving notice will also vary..
What’s the main takeaway message about buybacks?
When looking at retirement villages, you should ask the operator for up to date information about legislated buybacks in that state, as well as about any voluntary buyback schemes that operator offers.
You and your legal advisor should fully understand how the buyback scheme works, including understanding how the dwelling value is set and what appeals mechanisms are in place if you are unhappy with what transpires.
Some final words from Downsizing.com.au CEO, Amanda Graham
“Retirement village buy back schemes are designed to give peace of mind to retirement village residents and their families,” said Downsizing.com.au CEO Amanda Graham.
“However, it’s important that potential buyers get their own legal advice about a buy back scheme before entering into a retirement village contract.
“We hope that this story will also help our readers to know what questions to ask when discussing a retirement village dwelling purchase.”
If you are interested in a retirement village downsizing move, start your search today.
Please note this story has been prepared as a general guide only, and should not be relied upon as a substitute for seeking your own independent legal and financial advice.
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