12 Aug Life Right Agreements: Considering Your Options
The Life Right model is regarded to be the most progressive and leading form of retirement ownership worldwide!
It’s more and more common for retirement units to be sold on a ‘Life Rights Basis’ and it has certainly grown in popularity in South Africa since its inception in the 1970’s. Although it is a comparatively new concept, it is now the most popular model in the USA, Australia, and New Zealand.
The Life Right purchase model can be viewed as an investment in a certain lifestyle, most often directly linked to a security estate and/or complex, with services specifically designed for the Life Right occupants of the estate, which could include the provision of daily meals, cleaning services, scheduled outings, and other entertainment such as libraries, coffee shops, clubhouses and even gyms.
As we age and enter into the retirement phase, we often tend to worry mostly about our declining health, our financial position, and how we will make ends meet with the (sometimes limited) funds available at our disposal. Planning for retirement may include more cost-effective alternatives to the traditional concept of home ownership.
Many Life Right schemes and/or estates make provision for a broad level of affordability, where one could buy into a small complex, with fewer amenities, but at a low price; or where one buys into a large estate with ample amenities, but at a much higher price. It is also clear from industry practice that the typical cost of acquiring a Life Right is lower than what a retiree would pay for an own title unit in a retirement estate at the time of purchase.
Whether you are doing research for yourself, a parent, or a friend, let’s delve into the finer details of this purchase model and unpack the legal and financial implications of buying into such a Life Right model.
Life Right in a Nutshell
A Life Right can be defined as an agreement between parties where the retiree purchases a right to occupy a unit in a retirement facility/unit/house for the remainder of his/her life, subject to the condition that ownership will always vest in the Developer / Holding Company of the property. Upon conclusion of the agreement and payment of the purchase price, the retiree becomes a Life Right holder. A Life Right holder therefore may benefit from the same amenities, features and privileges of a purchaser of an own title or sectional title without having to take ownership.
Upon the death of the holder, the right will revert to the Developer/Holding Company who will in turn proceed to market and sell the Life Right to a third party, but subject thereto that the estate of the original holder of the right, will be compensated with a proportional amount of the original purchase price of the Life Right. Depending on the specific product you are buying, this amount can vary between anything from 80% to 100% of the original purchase price, subject to agent’s commission and/or refurbishing fees.
The terms and conditions of purchasing a Life Right will be outlined in a Life Right Agreement containing the details, rules, regulations, and limitations of purchasing the Life Right. A Life Right agreement also makes provision for Life Right holders to cancel the agreement should they decide to move out of the unit due to unforeseen circumstances (this may also include illness or incapacity).
Considering the Pros of a Life Right Model
The current minimum age for eligibility to live in a registered or zoned retirement estate/complex is 50 years of age. This young age makes it accessible to choose this lifestyle much earlier in life and reap the benefits thereof for many years to come.
1 – Your Rights are Governed & Protected
Firstly, you can rest assured, the Life Right model and the rights of occupants of a Life Right scheme, are governed and protected in terms of the Housing Development Schemes for Retired Persons Act 65 of 1988 (HDSRPA), which states that a Life Right holder essentially enjoys the same rights as if they had entered into a registered long-term property lease. The Act, for instance, places certain responsibilities on Developers, among other things, to provide a transparent statement of the basis on which levies will be calculated and to provide the prospective purchaser with a two-year cost estimate of all levies payable. This will, in turn, assist the prospective purchaser to consider the financial implications of investing in such a scheme.
2 – Saving Money & Planning Your Finances
Since the property never transfers into the name of the Life Right holder, the following costs do not apply to a Life Right purchase, resulting in a considerable saving for the Life Right holder:
- VAT
- Transfer Fees
- Transfer Duty
- Bond Registration Fees
- Bond Interest Repayment
It is also not uncommon for owners of sectional or own title property to periodically face high hidden costs or high special levies. Life Right holders will most often not have these unforeseen expenses, making Life Right schemes an attractive option for retirees living on a fixed retirement income.
3 – Healthcare Facilities & Services
Depending on what the needs of the Life Right purchaser are, many Life Right schemes provide either some of, or a combination of the following:
- Onsite medical nursing facilities which may include qualified nursing staff or a nurse on-site
- Emergency call facilities & emergency doctor visits
- Specialised Alzheimer & Dementia care
- Clinic visits which may include daily blood pressure monitoring and medicine administration
- Assisted living services which may include cooking, cleaning and other personal and/or medical requirements of an individual
- Palliative care
4 – Less Maintenance
Generally, the Holding Company of the scheme will be responsible for the maintenance and upkeep of the unit exterior and all communal areas. It is important to take note that a monthly levy is charged on every unit and these funds are utilised for maintenance and upkeep. A Life Right model therefore provides similar advantages to retirees as owning a property, without the added hassles of property insurance, maintenance, and upkeep of the exterior of the unit, the communal areas and the gardens. However, depending on specific scheme’s rules, the Life Right holder must maintain the interior of their unit.
Ultimately, Life Right schemes offer a retirement lifestyle in a fully maintained and managed environment, at a lower capital cost.
Deceased Estates: Transferability of Life Rights & the Implication Thereof
One of the main concerns for retirees is to make provision for the continual housing and maintenance of a surviving spouse after their demise as part of their maintenance obligations towards one another.
Since a Life Right constitutes a limited right of use and enjoyment of the unit for the remainder of your lifetime, you cannot bequeath the Life Right to your spouse or to anyone else in your Will. The best way to mitigate such a turn of events, is to enter into a Life Right agreement as a couple, ensuring both spouses are occupants in terms of the Life Right.
Once you’ve entered into the agreement as a couple, it is important to take note that no compensation will be payable to the surviving spouse after the death of the first-dying spouse. Under these circumstances, the Life Right will simply devolve on the surviving spouse. Once the surviving spouse has passed away, the estate of the surviving spouse will be compensated in accordance with the stipulations contained in the agreement after the successful resale of the Life Right by the Holding Company. The Life Right is therefore indivisible, which has the effect that the estate of the first-dying spouse will not receive compensation since the right has devolved in totality upon the surviving spouse.
Considering the Cons of a Life Right Model
Possible drawbacks with Life Rights are that it may possibly have a negative impact on the deceased administration process since the Holding Company needs to resell the unit before the estate will receive compensation.
Circumstances may arise where the resale process can take some time, therefore delaying the receipt of the compensation and, in turn, delaying the administration process. The deceased estate will also be liable for the payment of levies until the Life Right has been resold, which can bring about extra financial implications for the estate, should the Developer not find a new purchaser timeously.
However, investing in well-managed and reputable Life Right schemes may mitigate such instances and often the re-sale process can be swift and pain-free.
Summarizing Life Rights
At the end of the day, transparency will always be mandatory in terms of Legislation, so if you are unsure of any of the terms and conditions contained in a Life Right agreement, it is advisable to contact an attorney for assistance prior to making a final decision.
Essentially, a Life Right is an “insurance policy” for a safe and secure, autonomous existence, offering all the ingredients you will need for a successful, secure, and stress-free retirement. By doing thorough research and asking all the necessary questions, investing in a Life Right scheme can be fun and open many more enjoyable years of retirement.
If you have more questions about the Life Right model or Deceased Estates, please contact Madeleine Ebersohn at attorneys@louwcoetzee.co.za or phone us at 021 976 3180.