Financial advisors are increasingly being confronted with questions regarding life rights options and the impact that such a purchase will have clients’ future financial planning. As opposed to an investment in property, life rights ownership is an investment in lifestyle, security and peace-of-mind. However, it is important to understand the legal and financial consequences of buying into such a scheme.
Life rights schemes are growing in popularity in South Africa because they offer a cost-effective and less onerous option for retirees. As people age, they tend to worry about their financial circumstances and whether they will be able to live independently. As human longevity increases, so too does the need for assisted living, frail care and home care, and these modern retirement villages are designed to cater to these particular needs.
Ideal for those who have less capital to invest, a life rights scheme involves the retiree purchasing the right to use the unit for the remainder of his life. In the case of couples, the right to use the unit ceases upon the death of the second spouse or partner, and this right is inalienable. Because purchasing into a life rights scheme does not involve any transfer of property, no bond registration, transfer fees or VAT is payable, meaning that there are very few cost barriers to entry. Whereas residents of a life rights scheme enjoy similar benefits to sectional title owners, they have the added advantage that developer remains the sole owner of each unit and therefore carries the responsibility for maintenance and upkeep.
Upon the death of the life rights holder (or the last-dying spouse), the right to use the unit reverts to the owner of the complex who can then resell it. Upon resale, the deceased’s estate will receive the original purchase price plus a percentage of the net profit which is determined at the time of purchase.
What does a life rights contract include?
Life rights are regulated in terms of the Housing Development Schemes for Retirement Persons Act 65 of 1988 (HDSRP), which also stipulates that the minimum age for purchase of life right is age 50, although some schemes have a higher minimum age. The terms of your life rights contract are extremely important, especially when it comes to the terms of re-sale.
Your life rights contract must state what percentage of the purchase price will be paid to your estate in the event of death, bearing in mind that terms vary greatly from development to development. Some schemes can include a refund of your initial investment plus a percentage of the profits on resale, while others provide for the repayment of a percentage of the purchase price.
Either way, the life rights contract must comply with the HDSRP Act and must set out all limitations and rules that apply to the holder. If you are buying rights in a new development, be sure to check that the title deeds of the property have been endorsed by the Deed’s Office and that the land has been registered for development. Further, the contract must state that a section 6(1) certificate has been received which certifies that the development has been erected following the approved plans.
When reading through your contract, ensure that it provides the following security for you as the life rights holder:
Security of tenure: Your right to use the property for the rest of your life is an inalienable one and must be guaranteed in your contract. Security of tenure forms the foundation of a life right and this must be made clear in the agreement.
Physical security: The security standards of the retirement village must be clearly specified in your contract. 24-hour security can mean different things to different people, so ensure that the contract provides exact details of what security means. As you age, you will naturally feel more vulnerable and your need for security will grow. Is there a 24-hour guard at a security boom? Are there guards that patrol the premises at night? What does the developer guarantee in terms of CCTV cameras, beams and electric fencing?
Healthcare: The healthcare facilities provided by life rights schemes vary greatly, so decide what type of care you are looking for and do your research. Most developments provide nurse call facilities and 24-hour emergency. Other care can include onsite doctor visits, palliative care, Alzheimer’s and dementia care, diabetic clinics, assisted living, frail care and the ability to customise your care package.
Financial soundness: Do your investigation into the financial soundness of the organisation to ensure that it is financially reputable and has a good history of running life rights schemes. Ensure that the developer can provide a transparent budget levy for the next two or three years so that you can plan accordingly. There should never be any unexpected or ‘special’ levies charged.
What are the advantages of life rights?
Whereas owners of sectional title property may be hit with hidden costs and special levies, life right holders are protected from such expenses, making it an attractive option for those living on a fixed retirement income. Monthly levies are transparent and pricing can be tailored to fit your budget. Facilities and amenities vary depending on what you are looking for, but most life rights schemes offer a fully-supported retirement lifestyle with a fully maintained and managed environment.
Another advantage of life rights schemes is that their monthly levies and administration costs are generally lower, with developers being obliged by law to provide a two-year cost estimate in respect of levies. Reduced levies and greater levy transparency make it easier for members of a life rights scheme to plan financially for the future.
For many, communal living in a modern complex with extensive facilities and onsite access to healthcare is preferable to living alone in a freehold property, especially if their adult children no longer live close by. Security is a major drawcard for many retirees, who enjoy living close to their fellow-residents while having all security needs taken care of.
Life rights living provides all the advantages of homeownership without the hassle of insurance, home maintenance, garden upkeep, domestic workers, repairs and security upgrades. With the minimum age for many complexes being age 50, many South Africans are choosing this lifestyle earlier in life as the attraction of resort-style living grows. Many of these younger retirement communities are vibrant and inclusive, providing activities and entertainment that appeal to a younger retiree keen on an active, healthy retirement.
For those already living in flats, apartments and townhouse complexes, the move to communal living may be easy, whereas, for those moving from a large family home to a retirement village, the transition may take time.
Depending on the size of your unit and the layout of the overall complex, residents may experience a lack of privacy from living in such close proximity to people they do not know. Those who are introverted or who need their own space may feel duty-bound to participate in activities run by the complex and may feel they are expected by the other residents to attend functions, games evenings or club meetings.
If you are an animal lover, it may be difficult to find a retirement complex that allows pets. Some complexes allow residents to bring their existing cat or dog but prohibit them from replacing their pet when the pet dies. Other complexes prevent pet ownership outright, while some allow for small dog breeds and cats to live in the complex.
Because of their popularity, there are normally long waiting lists for life rights developments, and it is advisable to put your name down as soon as possible.
What does it cost?
There is an enormous number of life rights schemes available to South Africans, and we are spoilt for choice when it comes to choosing a retirement village that meets our specific requirements and budget. Life right developments cater for all levels of affordability, and typically the cost of a life right would be lower than what you’d pay for a house or apartment of a similar size. Every development comes with its own set of facilities, amenities and healthcare services, so it is important to do your homework and prioritise what is important to you before buying into a development.
A Randburg-based retirement village which is run by a faith-based, not-for-profit organisation accommodates 128 life rights units that include bedsitters, 1, 2, or 3 bedroomed units or cottages at prices ranging from R317 000 to R1 550 000, with monthly levies ranging from R1 730 to R3 890. Upon the death of the resident, the estate is refunded a percentage of the sale price depending on the number of years of occupancy. Their offering includes 24-hour security guards, all meals, full laundry service, cleaning services, activities, and transport to local shopping centres. They also provide mid and frail care, nursing services and access to doctors in the village.
A Sandton-based complex offers 2-bedroom life rights unit from R1 450 000 which includes an Alzheimer’s support group, meals, laundry services, indoor pool, exercise classes, nursing services, assisted living and frail care.
In Cape Town, a Thornton-based retirement development offers life rights from R1 035 832, with monthly levies starting at R5 456. Their facility provides 24-hour security, all meals, 24-hour emergency response, nursing and laundry facilities, although no pets are allowed. Slightly more expensive, a Muizenberg-based complex offers a 3-bedroom life rights unit starting at R2 550 000, with additional facilities including a heated indoor pool, pool and snooker, pilates, on-site clinic and nursing, accessibility to doctors, full security and frail care facilities.
The Helen Keller Society provides life rights cottages which are advertised as ranging from R510 000 to R960 000, and these facilities include cleaning services, 24-hour security throughout the complex, secure parking, meals, monthly clinic, nursing, plus assisted living and full nursing care options.
More upmarket retirement villages provide more luxurious facilities with life right options ranging from R2 800 000 to R7 500 000, and levies ranging between R3 700 and R7 500 per month. These exclusive complexes have extensive lifestyle amenities which include fully-equipped gyms, on-site bars and cafés, croquet lawns, cinemas, bridge and billiard rooms, yoga and Pilates halls, and 25-metre indoor swimming pools. In addition, they provide multi-disciplinary care centres that include doctors, nurses, bio-kineticists, physiotherapists and podiatrists. Life right holders can tailor-make their care packages to include physical rehab, frail care, Alzheimer’s and dementia care, and assisted living.