For a stress-free retirement, buying a property with life rights may be the best option. Learn more about what life rights entail.
In the US and UK, the leaders in retirement accommodation, most sales take place on a life rights (life plan) basis, and the concept was introduced to SA way back in the 1970s, but many local consumers are still not sure how it works – and how exactly it differs from a sectional title, full title or share block purchase.
However, says Gerhard Kotzé, MD of the RealNet estate agency group, a person who buys a life right in a retirement village is quite simply purchasing the right to occupy a particular home in that village for the rest of his/her life. “And when couples buy, that right extends to the last surviving spouse and cannot be otherwise terminated by anyone except the buyer.
“What is more, the rights of those who buy into life rights schemes in SA are specifically protected by the Housing Development Schemes for Retired Persons Act (HDSRPA), which states that life right-holders enjoy the same rights as if they had entered into a registered long-term property lease.
“This means that the real right of the life right-holder (to continue living in a particular home) will rank in priority over any other right, no matter whether or not this other right is registered over the property, and no matter when this right was registered.”
In addition, he says, buying a life right is usually also a significantly cheaper option than [buying the home][3] itself, and because there is no actual transfer of property ownership, there is also no bond registration fee and [transfer duty][4]/ VAT to pay.
“For many seniors who are worried about outliving their retirement savings, these lower costs are one of the big advantages of life rights schemes. And while levies are payable in life rights developments just as they are in estates and sectional title schemes, the HDSRPA requires the developer of a life rights village to provide a transparent statement of the basis on which levies will be calculated, as well as a two-year advance estimate of what the levies will be. This really helps residents on fixed incomes to plan their finances.”
Another big benefit of a life rights retirement village, says Kotzé, is that the developer retains ownership of all the units and is thus responsible for all ongoing upkeep and repairs.
“The good thing about this is that the developer has a vested interest in making sure that the village and all facilities are maintained to a high standard, because when the buyer passes away and a life right terminates, it reverts to the developer and can be resold – which will obviously be much easier to do if the unit and the village itself are in good condition and appealing to new residents.”
Then when the life right is resold, your heirs will usually receive your original purchase price back, plus a pre-agreed percentage of any profit on the resale, less any selling and refurbishment costs, he notes.
“So overall, life rights villages can be an excellent choice for those seeking a secure and stress-free retirement. However, purchasers in these schemes need to remember that they are being asked to hand over a large cash sum that could amount to a big portion of their life savings.
“In other words, they do need to be very cautious and should deal only with developers that have a good reputation and a track record of success with such schemes. It is also much less risky to buy into fully-built and functional life rights villages than into those that are still in the planning phase.”
Kotzé says life rights buyers must also make sure that any sale contract sets out very clearly how levies will be determined, what they will cover and how they will be inflated in future.
“The contract must also state exactly what proceeds will be repaid to the deceased estate upon resale of the life right, and before they sign it, they really should get their attorney to check that it complies fully with all the provisions of the HDSRPA as regards ownership of the land on which the village is built, disclosure of any mortgage bond over the development, the proper title deed endorsements and compliance with the National Building Regulations.
