Occupation Right Agreements: the questions to ask before you sign

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An Occupation Right Agreement is not the same as owning your home. It can still be an excellent decision — but you need to understand what you are actually buying before you sign.

Retirement villages suit a lot of the people I work with. The maintenance disappears, there is company if you want it, and there is a pathway to more care later without another move. Plenty of residents tell me it is the best decision they made.

What catches people out is the legal structure. In most New Zealand villages you are not buying the property. You are buying an Occupation Right Agreement — usually shortened to ORA — which is a licence to occupy a particular unit under the terms of that village's agreement. You do not go on the title, and you generally cannot sell the unit yourself on the open market.

That is not a warning. It is simply a different product from the house you own now, and it deserves the same scrutiny you would give any other major contract.

The rules behind it

Retirement villages in New Zealand are regulated under the Retirement Villages Act 2003, together with a Code of Practice and a Code of Residents' Rights. Registered villages must have an independent statutory supervisor, and there is a formal complaints and disputes process.

Two protections are worth knowing about specifically. First, you are required to get independent legal advice before signing an ORA, and your lawyer has to certify that they have explained it to you. Second, there is a cooling-off period after signing during which you can cancel.

The questions I would want answered

1. What exactly am I buying, and what happens to my capital?

Ask for it in writing. Under most ORAs you pay a capital sum for the right to occupy. When you leave, that sum is repaid to you or your estate — less the deductions in the agreement. In most villages you do not share in any capital gain on the unit, and equally you are usually protected from capital loss. Check which applies in your agreement, because it varies.

2. How does the deferred management fee work?

This is the single biggest number in the deal and the one people most often misunderstand. A deferred management fee (sometimes called a DMF or facilities fee) is a percentage of your original price that the operator keeps when you leave. It typically accrues over the first few years of occupation and then stops at a maximum.

Ask three things: what is the maximum percentage, over how many years does it accrue, and is it calculated on the price you paid or the price the next resident pays? Then ask the village to show you, in dollars, what you would get back if you left after two years, five years and ten years.

3. What are the weekly fees, and can they go up?

Weekly or monthly fees cover village outgoings such as rates, insurance, maintenance and shared facilities. In many villages these fees are fixed for as long as you occupy your unit; in others they can be reviewed. Get the current figure, get the policy on increases in writing, and ask what is not covered — power, contents insurance, meals, laundry and personal care are often extra.

4. When do I actually get my money back?

In most cases your capital sum is repaid once the unit has been re-licensed to a new resident, not on the day you leave. That can take weeks or many months depending on demand. Ask whether the village offers any guaranteed repayment period, because some do and some do not. This matters a great deal if the money is needed to fund care elsewhere.

5. What happens if my needs change?

Ask what levels of care are on site — independent living, serviced apartments, rest home, hospital or dementia care — and whether a transfer is guaranteed or subject to availability. Ask what happens if one of a couple needs more care than the other. Ask what the cost difference is.

6. What are the rules of daily life?

Pets, visitors and family staying over, renovations, hanging pictures, parking a second car, having a caregiver come in, being away for three months over winter. None of this is trivial once you live there. It is all in the agreement and the village rules, so read both.

How to compare two villages properly

1. Get both ORAs and give them to the same lawyer.
2. Ask each village for a written worked example of exit figures at two, five and ten years.
3. Add the weekly fee to your other living costs and compare the real monthly total.
4. Visit twice, once at a quiet time, and talk to residents without a salesperson present.
5. Ask each village for its most recent statutory supervisor report and disputes history.

And the honest bit

A village can be the right answer even if the financial return is poorer than keeping a house. People are often buying certainty, company and somebody else mowing the lawns, and those things have real value. The mistake is not choosing a village. The mistake is choosing one without understanding the numbers, and then feeling trapped by them later.

If you want a second, unpaid opinion on an ORA before it reaches your lawyer, I am happy to read it with you.

This article is general information only. It is not legal or financial advice, and it does not describe any particular village. You must get independent legal advice on an Occupation Right Agreement before signing it.