Troy Talks... The hottest issues in retirement village living

Troy Talks: the Hottest Issues in Retirement Village Living

Troy Talks: the Hottest Issues in Retirement Village Living

Beware the capital loss clause in retirement village contracts


A little known clause in some retirement village contracts can leave license-holders liable for a capital loss on their unit when they leave it.

If the license-holder has died, their family may have to cover the capital loss out of the deceased estate.

In a Facebook Live question and answer session run by the Commission for Financial Capability (CFFC) on March 19, the CFFC’s National Manager of Retirement Villages, Troy Churton, said that the use of the clause could be under-estimated when a family member was signing a license to occupy a retirement village unit.

“Most New Zealanders are aware that they will not make any capital gain on the unit during their time in a village, but some occupation right agreements contain a capital loss clause that says that if the resident’s village unit value declined, the resident may be exposed to having to contribute to the village operator’s loss when they exit.”

Churton said that a survey of village operators by the Retirement Villages Association about a year ago showed operators had mixed views on whether the clause would be actioned. “Some didn’t have a capital loss clause, others said if they had one they probably wouldn’t exercise it, and some said we do have it and if we need it we would exercise it.”

Churton, who travels the country giving free public seminars for people thinking of moving into a retirement village, says some potential residents view this as a “hot issue”. “They say that on one hand I’m not getting any capital gain, and on the other I could be financially liable for the operator’s losses.”

The CFFC, which performs a monitoring role of the retirement village industry on behalf of the government, advises people of the requirement to gain legal advice before signing a village contract, and recommends they seek financial advice as well.

“The family of an older person need to know this stuff, as much as the older person themselves,” says Churton. “A lot of older folk are entering a village in a situation of vulnerability, and to think an older person will grasp all the little fish-hooks and implications of a complex contract is a big ask.”

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