I have bought into a life rights retirement village. My understanding is that you are guaranteed a place to live for life and the property is owned by the developer. We pay a monthly levy that increases every year. What would happen if the tenant at some stage cannot pay the monthly levies anymore? Can the developer evict the tenant, or would the levy cost be deducted from the cost of the house when it is eventually sold with the seller obviously receiving less for the sale of the house? My biggest concern is that the developer evicts the tenant for non-payment of levies. Has the developer got the right to do so?
Firstly, thank you for your question about life rights levies. Life rights schemes are growing in popularity in South Africa because they offer a cost-effective and less onerous option for retirees. A life rights scheme involves purchasing the right to use the unit for the remainder of one’s life. In the case of couples, the right to use the unit ceases upon the death of the second spouse or partner and, importantly, this right is an inalienable one.
Security of tenure forms the foundation of a life right, and the inalienability of this right must be guaranteed in your life right contract.
Life rights are regulated in terms of the Housing Development Schemes for Retirement Persons Act 65 of 1988 (HDSRP), and the terms of your life rights contract are extremely important, including what happens in the event that a life rights holder fails to pay their levies. Before buying into a life rights complex, it is therefore important to ensure that the contract complies with the HDSRP Act and that it sets out all limitations and rules that apply to the life rights holder.
In terms of the act, provision is made for the eventuality that a life rights holder fails to pay their levies
Firstly, interest at a rate determined by the body corporate from time to time will be charged on the overdue levies, with this interest accruing from the date that the levy falls due to the date that the levy is paid.
Where a life rights holder fails to pay levies and interest owing, the body corporate should give the member reasonable time in which to remedy the matter. If the member still fails to pay, the body corporate has the right to disconnect and/or discontinue services to the member’s unit and refuse the member access to the complex’s communal facilities. The body corporate may also institute legal proceedings against the member, with the member being liable for legal costs and penalties.
Unlike sectional title levies which are set on an annual basis, life rights levies and administration costs are generally lower and much more transparent.
Further, life rights developers are obliged by law to provide a two-year cost estimate in respect of levies, making it easier for retirees to manage their cash flow into the future.
This means that budgeting in advance for your levies should be more cost-effective and manageable and, if you’re managing your retirement income carefully, you should not find yourself in a position where your levies are in arrears.
That said, life rights contracts can be long, complex and difficult to understand, and it is always advisable to see advice from an experienced property attorney before signing the contract so that you fully understand what your legal position will be if you run into future financial difficulties.
In addition, we recommend that you consult with a qualified, independent financial advisor who can prepare cash flow forecasts for you to ensure that you can afford the costs of your life rights unit going forward.