Retirement, or rather upgrading your lifestyle whilst downgrading your work-rate as is the latest attitude, is a big decision for anyone over 50. Choosing where to spend the rest of your days is a very important decision, but choosing how to structure that investment is often overlooked and not part of the decision- making process, something that is only addressed once the ‘sign here’ documents are in front of you.
Globally, Life Rights are the most widely used retirement accommodation structure and were introduced in South Africa during the late 1960s. Before Life Rights were introduced as an option, retirement properties followed the normal sale process – an outright purchase of a sectional title unit or freehold property or through a lease agreement. Life Rights is a form of lease agreement with the property developer and is often referred to as a life-lease: a lease agreement that you pay upfront for. For example, explains Craig Scott, developer of Langebaan Country Estate, who will be launching their Life Rights retirement village, The Village this year, “‘The ‘purchaser’ can, for instance, pay R2million upfront for a unit in a Life Right structure. You have paid for your right to occupy the unit (and the estate) for you and your partner, who now own the right to live in the unit for the rest of your lives. No matter how long you live.” This mitigates a monthly bond repayment or rental and in most cases the owners are only subjected to a consumption levy from the estate.
The benefits of Life Rights are numerous, the most notable being:
- An upfront payment means you have no monthly bond repayments or rental costs
- When you or your partner pass away, the surviving partner continues to live in the unit
- You have a ‘real right’ in the eyes of property law and are guaranteed the right to live in the property
- If you remarry, your new spouse may occupy the unit with you , but will not have any rights to the life-right ownership
- You act as a lessee, so any maintenance to the property is the responsibility of the property developer
- Upon death of both owners, the purchase price is refunded, usually at 100%
- Life Right proceeds can be nominated to a beneficiary (your children for instance) and fall out of the normal deceased estate red-tape
- There’s no VAT on the sale or transfer duties and no registration fees
- You have a secured return of capital invested
- Re-sale is the responsibility of the developer, so there’s no concern when it comes to selling the property upon death of both spouses
Rob Jones, CEO of Shire Retirement Properties and an expert consultant to the retirement industry, says that Life Right holders are well protected under The Housing Development Schemes for Retired Persons Act. “The Act prescribes numerous rights for people buying into retirement villages, specifically Life Rights. The developer is obligated to have the title deed endorsed as a Life Right Scheme. Once the deed is endorsed, purchasers who buy into the Life Right scheme are protected by law.”
The developer is subjected to many rules and a regulation forcing him to comply with the endorsement and Jones advises that prospective buyers must firstly check that the scheme is established in terms of the act and, if so, always insist on transparency from the developer. “Developers have to be very transparent as to what the levies are and these levies must be fixed for a term of 1 year with a 2-year estimate; any mortgage over the land must be made known and once the first occupants move in, the developer is not permitted to apply for any additional loan on the land.”
Jones stresses that a good Life Rights village should have good security, care facilities and transparency that provides financial security. In response, Scott says “We have not only carefully and thoroughly refined our lifestyle offering for The Village, but we also meticulously considered all types of ownership structures and although Life Rights is a long-term investment for any developer, it certainly is the best choice for those considering their retirement options.”