How do life-right sales work?

People are sometimes confused by the well-established ‘life-rights’ retirement model; and this article attempts to explain the concept.

Simply put, a life-right agreement is an innovative and trusted model that provides you and your spouse, or partner, with a safe and secure home for life. It offers peace of mind and quality of life in your later years. It differs from a traditional bricks-and-mortar property investment because its primary objective is to offer a stress-free retirement lifestyle, without the burdensome responsibilities, which often accompany sectional title ownership.

Most types of independent living, retirement accommodation are sold on the basis of either ‘life-rights’ or ‘sectional title’. Very few people understand the nature of life-rights purchases and this article, attempts to clarify this model.

The question of how does Life-rights work, is a little akin to asking how long is a piece of string? Despite references to the buying and selling of a unit, under life-rights arrangements, there is actually no acquisition of real estate, but rather a purchase of the right to live in a specific unit, for the balance of the purchaser’s individual lives. They and, where applicable, their spouses, are guaranteed the right to reside in that specific unit for the remainder of their independent lives.  Essentially a life-rights purchase amounts to a pre-paid lifetime rental. I.e. ownership is retained by the administering authority, or developer, and may only be resold after the departure of the occupants occasioned by departure, due to death; or due to an inability to continue living independently in the unit.

An aspect that needs clarification is that pertaining to the ability of individual’s to live independently. Occasionally with age, some residents become frail and infirm to the extent that they are unable to live alone in their cottages; that their frailty prevents them from coping unaided with the normal tasks of daily living. In such circumstances, the developer/administrator has the right and responsibility to ensure that they vacate the independent living unit, and transfer to a frail care centre, or to an assisted living unit. At this point, the life-rights contract for their individual cottage ceases, but a moral obligation of the developer to continue providing them with appropriate and meaningful care continues unabated – as life rights villages are designed to provide care from entry to the grave.

Life-rights agreements contain a clause whereby on vacation the departing person, and in the case of death  –  their estate, ultimately benefits, either by the whole purchase price, plus a portion the of capital growth;  the whole purchase price without capital growth; only a portion of the original purchase price, or no part of the purchase price.  From a legal perspective, in the case of a lifelong rental lease occupancy agreement, this type of occupancy represents any normal rental agreement where tenants have no rights of ownership at all.

The Housing Development Scheme for Retired Persons Act also states that life-right holders enjoy the same rights as if they had entered into any other registered long term property lease, in that the real right of the life-right holder will rank in priority over any other right, no matter whether or not this other right is registered over the property, and no matter the time when this right was registered.  Purchases in well established, fully functional schemes are less risky compared to buying into off-plan, or incomplete schemes.

Especially important in contracts is the transparency of increasing operating levies, as well as the proceeds of sales of life-right units, as the specified percentages of refunds to estates, and or vacating occupants, differ vastly from one scheme to another. The property itself does not become an asset in the purchaser’s estate and consequently cannot be bequeathed to an heir in a will.

A contract should ideally include the following security guarantees:

1. Physical security – a life-right purchase should include access to electric perimeter fencing, 24-hour guards, emergency armed response and personal remote/ panic buttons.
2. Health security – A life-rights contract must be clear regarding available health care; such to ideally include… an onsite frail care facility and 24-hour nurse call facility.
3. Financial Security – the life-right contract must be transparent in terms of disclosing the historical, and anticipated annual levy escalation costs. This allows for reliable financial planning in your retirement years.

Advantages of life-rights

• There are no transfer duties or VAT payable.
• As there are no title deeds, there are no registration fees payable.
• Life-rights villages tend to be developed by larger organizations having an ethos of care, rather than individual developers’ intent on profit, with the inherent risk entailed in this pursuit.
• The developer remains the sole owner of each unit in perpetuity.

Disadvantages of life-rights

• Purchase Bonds are not normally accessible in respect of life-rights purchasers.
• An occupant cannot bequeath a life-right to children, nor can children purchase one from parents with the intention of utilizing it themselves at a later stage.

In conclusion, the life-rights purchasing model is a tried, tested and internationally accepted method of purchasing retirement accommodation and care.

The most important aspect of any purchase is to read the agreement (especially the small-print), thoroughly

Henry Spencer

Note from the author of this article:

Although I continue to work in the retirement field, I live in a reputable and trusted retirement village. I purchased my accommodation on a life-rights basis and would recommend the life-rights model to any person considering retirement options.