Retirement Villages And Life Rights

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Contractual Matters

We commonly discuss the merits of, and differences between freehold and sectional title properties, but retirement villages often provide a third alternative to these two forms of ownership – Life Right Schemes – for those looking for a lifestyle change in old age.

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Forms of ownership

Typically, there is a debate regarding buying property based on full title and sectional title.

Full title or ownership of a freehold property refers to having full rights relating to a property, including the land and the buildings on that property, while sectional title describes ownership of a specific unit or section within a complex or development as well as the right to use common property within that development.

However, complexes or developments that are specifically set up as retirement villages are often managed as Life Right Schemes. This means that people are able to buy into the scheme for their lifetime and an agreement is signed that allows the person to live in and use a unit within a complex or development.

The costs

This agreement typically involves an advance payment to the developer, in return for which the individual is entitled to live in and use the property without owning it. Life Rights, however, are often cheaper than conventional freehold property or sectional title schemes.

There are also levies payable as with a sectional scheme, which are used for the administration, management of the housing development and the upkeep of the common property. In the same way as a sectional title scheme, it is always advisable to request to see the financials of a Life Right Scheme to ensure effective management is in place.

When buying into a Life Right Scheme, consider…

When it comes to selling a share in a Life Right Scheme, the arrangement or contract with the developer will determine how much of the initial investment can be recovered through a sale. It is possible to receive a portion of your capital investment together with a portion of the profit of the sale, depending on how the agreement was structured and how long an individual stayed in the scheme.

In some cases, there may also be limitations regarding who may occupy or buy the rights to the property, which can become problematic and reduce the sale opportunities should a resale of these rights be desired.

Furthermore, should the share block company who owns the property become insolvent, requiring a sale in execution of the property, the scheme shareholders are viewed as concurrent creditors and as a result, are last in line to benefit when assets are redistributed.

Life Rights remain in place until the holder of these rights passes, after which, according to the Life Right agreement, the right can be resold and any proceeds paid over to the estate of the deceased.

Life Right developments, while similar in nature to sectional title schemes, are not governed by the Sectional Titles Act, 66 of 1971, but rather by the Housing Development Schemes for Retired Persons Act, 65 of 1988 which governs what may and may not be included in agreements relating to Life Rights to properties.

When considering entering into a Life Right Scheme agreement, one should always seek out the services of an experienced attorney before committing to ensure the most beneficial agreement is reached.

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