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‘Retirement village legislation is at risk of becoming outdated and unfit for purpose,’ a Commission for Financial Capability report has found. Photo: Getty
‘Retirement village legislation is at risk of becoming outdated and unfit for purpose,’ a Commission for Financial Capability report has found. Photo: Getty

BusinessJune 9, 2021

How residents get trapped in the retirement village paradox

‘Retirement village legislation is at risk of becoming outdated and unfit for purpose,’ a Commission for Financial Capability report has found. Photo: Getty
‘Retirement village legislation is at risk of becoming outdated and unfit for purpose,’ a Commission for Financial Capability report has found. Photo: Getty

The retirement commissioner has called for an overhaul of retirement village legislation after growing concerns that the rules favour operators over residents. Donna Chisholm looks at the sector, and the ‘systemic problems’ that triggered the demand for reform.

To understand the frustrations and fish-hooks of retirement village contracts, consider the case of Masterton businessman Peter Munn and his mother, Patricia.

After a stroke in late 2016 forced 90-year-old Patricia into higher-level care, Peter watched with mounting annoyance as the village that owned her empty apartment north of Auckland took months to find a new occupier. The family had confirmed in June 2017 that Patricia wouldn’t return to the apartment, but it was more than a year before the money from the “sale” was finally paid out.

The Munns had spent about $350,000 five years earlier for the “licence to occupy” her unit. Patricia had also signed an “occupation right agreement” which set out what she could and couldn’t do as a resident. Despite the large upfront sum, the contracts give residents no ownership rights to the property.

When the Munns were finally paid in July 2018, they received 30% less than they’d originally paid, thanks to the deduction of the deferred management fee that villages routinely take to refurbish the unit for its new occupiers. They’d also continued to pay Patricia’s weekly fees at the village for six months after her stroke.

Delays in licence-to-occupy sales, ongoing fees after departure, accrual of the deferred management fee – which can mean capital continues to decrease the longer it takes for the unit to be reoccupied – and the lack of capital gain sharing are among the issues that have led to retirement commissioner Jane Wrightson’s review of the laws governing retirement villages. In a report released today, she says many of the residents’ concerns relate not to their time at the villages – during which they are generally content – but to what happens when they enter or leave.

It’s at the “moving on” stage of the process that residents or their families are often at their most vulnerable and not in a position to complain, says Wrightson’s report. It says the complex legal framework governing the sector is at risk of becoming “outdated and unfit for purpose” and the government must urgently review it to eliminate unfair terms in contracts and better protect consumers.

Jane Wrightson, retirement commissioner, has called for an urgent review of the legal framework. Photo: Supplied

The report follows her release of a discussion paper in December calling for responses to proposals for reform, which attracted more than 3,000 submissions. If the government agrees to the review, it will be undertaken by the Ministry of Housing and Urban Development.

Wrightson says most village residents are comfortable with their choice of living arrangements and most operators provide very good services and care. She says the discussion paper “would have had a very different tone and feel had I come to the view that this was a corrupt industry designed to rip people off and providing substandard care. This is not the problem we have. The issue we have is a lightly-regulated industry that’s relatively young that is growing like Topsy and where I think protections for consumers are not quite right.”

Six big players dominate the retirement village industry: Ryman Healthcare, Summerset, Arvida, Bupa, Metlifecare and Oceania Healthcare. As Consumer NZ pointed out in February, research highlighting contract terms that favour operators and risk leaving residents unfairly out of pocket shows that their business model benefits from churn. Licence to occupy (LTO) agreements – which cover 96% of the sector – can cost anywhere from $200,000 to more than $1 million for a two-bedroom unit and the deferred management or exit fee deducted when the resident dies or moves out is usually 20%-30%. The average tenure of a unit is about seven years.

Retirement Villages Association (RVA) executive director John Collyns says such an overhaul is unnecessary and excessive given most residents are happy with their living arrangements and he’s “puzzled” by Wrightson’s recommendation. He says the current regulatory environment gives operators the flexibility to offer the choices residents want.

The RVA, in an apparent bid to head off a legislative review, at its May annual conference launched what it called a blueprint to improve the industry. That included plans to strengthen the complaints processes in villages, giving residents a stronger voice and working with the Commission for Financial Capability to monitor licence resale times. Collyns says Wrightson should focus on working with the industry on those initiatives.

Wrightson wants to see residents or their families get their capital back within six months of leaving a village, whether or not a new occupier has moved in. She says the industry itself is torn on the issue. “They all say, ‘What about the poor little independent villages who are struggling and can’t sell their units,’ but they are in the minority.”

Operators building additions to a big village naturally want to sell the new units first, she says. “This means an incentive needs to be built into the process so you’ve got six months and if you don’t sell it in that time, you need to refund.”

She told The Spinoff that the retirement villages model in New Zealand was “unique and very clever. I can see how an industry grew from it and it is solving a series of problems, there is no doubt about that. But the core issue is that residents are neither owners nor renters. That means they don’t have the rights of owners or the protections of renters so it’s really important they understand what they’re signing up for.”

Her report calls for greater clarity and consistency in the occupation right agreements that residents sign. There are big variations in existing agreements and some lawyers aren’t skilled enough to give effective advice in such a specialised area.

Ahead of a legislative review, she wants villages to report to the CFFC on resale and buyback times and the processes they follow in terminating fees after a resident departs. This, she says, will provide insights into which operators are following “best practice” standards.

That can’t come soon enough for Munn, who’d like to see a major overhaul of the way villages are run. He believes residents would be better off renting their apartments rather than paying a large sum upfront for a licence to occupy them.

He became so sick of waiting for the apartment to be sold that he threatened to put it on Trade Me himself, which of course he couldn’t because his mother had no ownership rights.

“You don’t own the thing at all and it’s just a joke that they take your money from you – you have no say about anything. You’re allowed to live in a house that you rent but you don’t have to pay (upfront) for the stupid thing. Licence to occupy is an utter rip-off, it’s just a way of getting capital out of you. It’d be much cheaper financially if you just paid a reasonable rent for the place but you have your money tied up and you can’t touch it.”

He believes because so much money changes hands, some elderly people wrongly believe they have an ownership stake in their village unit.

Peter Carr, executive president of the Retirement Village Residents Association, agrees. “A lady in my village the other day, after eight years there, told me she owns the house she is living in. And I had to disappoint her and tell her the facts of life.”

But he says a bigger issue, as in Munn’s case, is the length of time it takes for the new occupiers to move in and the previous occupant or their estate to be paid out. “People cannot understand, and more importantly their offspring cannot understand, why village owners hang on to people’s money for so long. It’s in the occupation right agreement, we all know that. But every meeting I go to my first question to an audience is how many have read your ORA and understood it since you moved in?  An average 2% of hands go up and that’s appalling. At the front end of the exercise, they go to the lawyer because they have to … then they put the agreement in a drawer and forget it.”

Most often when residents move out of a retirement village, says Wrightson, it’s on a stretcher or in a box, but sometimes, their circumstances change.

“Most people do think it’s their last move but that becomes problematic if you hate the village, if you become embroiled in serious complaints and if you become really ill and the village doesn’t have a hospital bed.”

But in the retirement village model, residents can also become trapped if their circumstances change and they simply want to move elsewhere.

“Once you buy in, your capital erodes over time,” says Wrightson. “With the housing market the way it is it’s very difficult to come out of a village and buy back into the ordinary housing market or buy into new ORAs because you don’t have the cash and that’s why people feel trapped when things are going badly.”

This is just what happened to Chris and Ren Stokes, who’re now 77 and 83. When they moved into their comfortable Tauranga retirement village nearly eight years ago, they planned on living there until they died or needed hospital care.

They understood what they were signing up for when they paid $359,000 for the licence to occupy their brick and tile home. They also knew that when they moved on, they’d lose their 30% deferred management fee.

But late in 2019, after unexpected health problems cropped up in members of Chris’s family in the South Island, the couple decided to move closer to them.  After finding a village they wanted to move to, they soon realised that the 30% deduction had made it impossible for them to afford to either buy a new home or a place in another village. Not only that, but after using their money to refurbish the unit, the owner would pocket all the capital gain when it was resold.

Now they say they’re trapped in the village and can’t leave even though they want to. Chris says they asked the owner if he’d consider not deducting the deferred management fee but he says his accountant wouldn’t allow him to.

“We try very hard to live a normal life but to suddenly find you have no choice in what happens next is very, very hard to deal with.”  She stresses that she doesn’t blame the village operator, but says it’s an industry-wide issue.

“When we signed up, inflation was not as rampant as it is now in the real estate area. We knew we would lose some [capital] but then we were downsizing from a four-bedroom home. We could have afforded at that time to go out of a village if we wanted because the prices outside were not that bad.”

Consumer NZ research manager Jessica Wilson says when residents don’t share capital gain and lose the deferred management fee, it ends their ability to choose to live somewhere else without taking a huge financial hit. “Retirement village contracts are some of the most restrictive we’ve come across, particularly when you consider the huge sums of money involved – residents pay hundreds of thousands of dollars to live in a village. The licence to occupy model which predominates in New Zealand has brought operators significant financial benefits to the detriment of their residents.”

She says residents who complain seldom want to go public because they feel so vulnerable and if they do speak out their lives will become even more miserable.

“We had one resident recently complaining quite legitimately about wanting some repairs to be done and the bottom of the letter of response from the operator was a veiled threat that if they didn’t like it, they could move out.”

Residents Association president Peter Carr has seen it first-hand. “One resident the other day was shivering with fear in case the manager saw them talking to me.” He says in some cases, they have the wrong perception, but their anxiety can be legitimate. He’s called for greater training for some managers in “how to deal with people who have an average age of 80.7”.

He wants a better system for handling residents’ complaints to get rid of the “aura of fear”. So too does Wrightson, who says the lack of an adequate structure is the main problem for current residents. “There were no initiatives around this until we started banging on about it.”

The Retirement Villages Association has suggested exploring the establishment of an Ombudsman to hear and resolve complaints. Says Wrightson: “Explore is a nice word. We’re asking them to do something.” She says the operators’ current default mechanism when complaints arise is to hire a lawyer.

“That’s quite confronting for a resident who may not have the money to get legal advice.” She’d like to see a quasi-tribunal like structure where lawyers aren’t welcome.

Although the lack of capital gain sharing has grabbed many of the headlines in retirement village stories, Carr doesn’t believe it will ever happen. “We know the owners are absolutely adamant they won’t let it go.”

Wrightson, too, doesn’t have a strong opinion on the issue, saying she understands both parties’ views. But she’d like to see different models evolve. “You could have four or five-star living in a particularly well-appointed village and have no capital gain or maybe go into a village where you are a tenant paying rent.”

The RVA’s Collyns says a small number of villages allow residents to buy unit titles, and if demand grew for capital gain sharing, operators would meet the market. But that would likely involve higher up-front costs and weekly fees.

“If you share capital gain you have also got to share the downside. The quid pro quo is that resident is also responsible for maintenance and upkeep and would share a capital loss.”

Capital loss might be unheard of in recent years but gains aren’t always a given, he says. “Just because property is going gangbusters for 10 years doesn’t mean it always will – the market is cyclical.”

Market analysts say capital gain is a significant contributor to the bottom lines of villages, but Collyns says that’s through rising property values, not the profits made when LTOs are sold on.

People move to a village mainly for financial security, says Collins. If their weekly fee is fixed, they know exactly how much their living costs will be and they are insulated from property ownership issues such as rate rises, property maintenance, storm damage, earthquake concerns and leaky building problems. “In exchange they basically forego any gains on relicensing.”

He says there are usually good reasons for sometimes lengthy delays in LTO sales. The incoming resident’s own property sale might fall over, and unit refurbishment could take longer than expected because of a difficulty getting tradespeople and a Covid-disrupted supply chain.

“But if we as a sector conclude the operator could do more, we will politely but firmly suggest they buy the unit back. Over the last couple of years, we’ve intervened on half a dozen occasions and on each, the operator has bought the unit back.”

Wrightson says although retirement village oversight is a relatively small part of her portfolio, she was surprised when she began investigating at how “noisy” it was.

“I realised it was because in effect there were two types of people shouting at each other and there was no real ability to resolve any of the important issues. Operators tend to do things case by case and the Residents Association and the residents tend to often talking about systemic structural problems. The problems can’t be solved just by them and we’ve concluded that it’s a systemic problem. It’s not that hard to fix once you get the framework right.”

Wrightson is more concerned at the looming issue of housing affordability for older people in general. She says the conversation so far has been about first home buyers, but there were as many issues for the coming generations of seniors who will go into retirement without owning a home.

“The pension does not incorporate housing costs – it’s designed for having your home freehold by that point. We know this is a 20- to 50-year looming problem. What makes me cross is that this has been known for quite a long time and governments of all colours need to bear responsibility.”

The Retirement village sector, in numbers


of the population aged 75+ live in retirement villages, up from 9.4% in 2012.


The number of retirement villages registered, with around 36,000 units that are home to an estimated 46,800 people.


of all units are owned by the corporate sector, including publicly listed companies such as Ryman Healthcare, Oceania, Arvida and Summerset Group.


are in the not-for-profit sector (eg Selwyn Foundation, Masonic village trusts, church and welfare organisations).


are independently-owned.


of units are occupied as Licences to Occupy (LTO) and the remaining 5% are unit titles.


The approximate proportion of villages have a care facility on-site.


The estimated GDP of the industry, increasing at the rate of $480 million annually.


New villages planned or currently building, with 37 new villas added every week.


The increase in the number of people aged 65+ by 2060; a doubling.


The proportion of New Zealanders who will be over 65 in 2060. As soon as 2028, those aged 65+ will outnumber children aged 0-14 for the first time. This is because we’re living longer, and having fewer babies.


The life expectancy for New Zealand women, up from 73 in the 1960s; for men, the number has gone from 68 to 79. A child born today can expect to live to their 90s.

Sources: Retirement Villages Association, Retirement Villages Residents Association, Commission for Financial Capability.

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