What You Need To Know For Retirement

Choosing a retirement property can be a daunting prospect as there are so many factors to consider: location, cost, amenities, healthcare services and, crucially, what ownership scheme you are buying into.

The two options most commonly offered by retirement developments in South Africa are sectional title or life rights ownership. These two options differ significantly on the matter of monthly costs (in terms of special levies and maintenance) as well as what happens to the unit after the owner passes on. Sectional title ownership is also an option for homebuyers of all ages, while life rights are reserved for retirees buying in to a life rights estate.

“Retirees are usually much more aware of what’s involved in sectional title ownership than about life rights ownership, despite its increasing popularity,” explains Gus van der Spek, founder of life rights management company, Manor Life and retirement lifestyle estate, Wytham Estate in Cape Town. “This has created some misconceptions around what life rights ownership actually entails. While both options have their pros and cons, life rights offer retirees a more flexible form of ownership. It also offers lowered upfront and ongoing costs, along with a host of other benefits.”

He shares that one of the most common misconceptions around life rights ownership stems from the incorrect idea that it offers the same claim to the unit as someone who is renting. “Life rights give a buyer the exclusive right to live in a unit – and enjoy security of tenure – for the rest of their life. Life right holders are entitled to the same rights they would have if they’d entered into a registered long-term property lease but crucially, they’re not required to oversee the transfer of ownership,” says van der Spek.

Life rights model explained

A life right agreement involves three parties:

1. The Owner, who grants the life right. This is the owner of the retirement estate. They grant a right of tenure known as the Housing Interest over their property.
2. The Holder, who pays for and holds the life right. They acquire the Housing Interest in return for an interest-free loan made to the Owner.
3. The Occupant, being the person who lives in the Housing Interest and has the right to remain there for the remainder of their life.

“The Holder and Occupant of the life right are usually the same person or a couple, but occasionally the Holder is a formal trust or family member who pays the life right to ensure that the Occupant can live in the unit,” van der Spek explains. “A life rights contract is cancelled when either the Occupant voluntarily decides to move out or they pass away.”

What your family should know

Life rights differs to sectional title or freehold home ownership in that a life right Occupant’s claim to the property ends upon their death. This has obvious implications for the family members and descendants who would ordinarily be tasked with managing the sale of a home when wrapping up the estate of the deceased.

“If the Occupant of the Housing Interest passes away, the sale of the life right operates similarly to a house sale. The Holder of the life right (if not the Occupant) is paid once the life right is sold to a New Holder. If the Holder of the life right is also the deceased Occupant, the money will be paid to their estate,” van der Spek explains.

If the right sells for more than the previous Holder paid, they will be paid back the full amount they invested, less any transactional and renovation costs.

“It’s important to talk to your family before entering into life rights ownership so that they are aware of the different transfer process should you pass away. Ultimately, the life rights Owner is responsible for the marketing and sale of the unit and acts as a liaison between all parties”.

“This takes a lot of pressure off of the deceased’s family and saves them the money and time that they would have spent on overseeing the sale of the home themselves,” he adds.

Take exit fees and levies into account

The final considerations that retirees should take into account are the exit fees and special levies built into most life right contracts.

“Renovation and other hidden fees may be charged in some retirement estate contracts, and vary from estate to estate. Something being undetermined values which can form a large part of the original investment. However, some estates, such as Wytham, choose to cap these fees after a certain period. They are intended to be all-inclusive and cover estate maintenance, unit refurbishment and placement fees,” says van der Spek.

“This is hugely beneficial to the Occupant as they can enjoy a huge range of amenities, serviced living, and home-based care, and have no maintenance responsibilities for an all-inclusive, lower cost. It allows them to spend enjoy their Golden Years stress-free, as is always the goal with retirement,” he concludes