Contract conundrums: Unpacking the fine print of retirement villages

Retirement village operators are under harsh media spotlights once again after ABC’s 7.30 covered some of the complex contracts residents receive, in what politician Rebekha Sharkie called “corporatised elder abuse”.

It’s not the first time retirement villages have fallen foul of mainstream media with a joint Fairfax Media-Four Corners investigation in 2017 uncovering “questionable business practices at Aveo, including safety issues, misleading marketing and advertising and property sales”.

Among the leading concerns are exit fees that can reportedly eat up considerable funds from a property’s sale price. One example from the ABC showed that one woman lost roughly $130,000 from the $365,000 she paid to enter a village, with the final $235,000 not enough to secure a residential aged care space. 

A mathematical formula in her contract explained how the exit fee worked with village operator RetireAustralia stating that it apologised for not meeting her expectations while acknowledging that it was the first time an issue had been raised about the formula.

Ultimately, the story from 7.30 does dig in its heels, claiming that residents “don’t understand what they’re signing up for”.

Danielle Lim, Principal DSL Law and a retirement/seniors living expert, said the story portrayed by the ABC is distorted, creating unnecessary fear among current and potential residents. She pointed to the majority of happy and well-supported residents as evidence.

“The narrative that the entire industry is unfairly ‘ripping people off’ indicates a misunderstanding of the diversity and complexity within the sector. There are literally thousands of different contracts in the marketplace, each catering to unique needs and circumstances,” Ms Lim told Hello Leaders. 

“It’s overly simplistic to label a specific fee, like an exit fee, as inherently unfair without considering the broader context of the contract. The total value proposition depends on all the terms in the contract, not just individual components. What works for one person might not work for another, and the diversity in fee structures reflects an effort to cater to different financial situations and preferences.

“The current variety of options, from high to low purchase prices and exit fees, varying capital gain entitlements, different obligations regarding maintenance and repair, and care services, provides the flexibility needed to meet individual preferences. Restricting these options would be both limiting and disrespectful to residents’ autonomy and their fundamental freedom to choose the contract that best fits their needs.”

Ms Lim added that contracts and fee structures should be sufficiently flexible to recognise the sophistication and diverse needs of some prospective residents.

Effective communication and advice

At the heart of the issue is a common problem: poor communication. There are complex contracts in retirement living, but often, they’re no different to the kinds of contracts people deal with when building a home or running a business. 

But these contracts do require an expert point of view and clear communication about key points. This is not purely because residents are unable to understand them because as Ms Lim said, “many potential residents are well-informed individuals in their 60s” but because contracts are often complex by nature.

“Retirement living operators should ensure that prospective and current residents have access to all necessary information in a transparent and understandable manner, while continuing to recommend independent advice,” Ms Lim added. 

That advice should not come from village operators, though, as it would create a conflict of interest. While operators are expected to be transparent and provide clear, accessible information, independent advice should come from a qualified, external advisor.

Where possible, operators who do recommend external advisors should ensure they’re recommending reputable advisors. Residents who receive ineffective counsel are more likely to be shocked by contract details.

Ms Lim said one solution would be retirement village operators contributing to resident associations with that funding helping associations provide unbiased education on entering villages or operating an accreditation system for lawyers and financial advisors.

“Such a system could ensure advisors meet minimum standards and offer reasonable pricing, ultimately benefiting all residents and avoiding the bulk of issues before they happen,” she said.

Retirement Living Council Executive Director Daniel Gannon said their focus is on improving the experience for all residents.

“Industry continues to work hard to ensure that 250,000 retirement village residents across the country have the wonderful experience they deserve, which is generally the case,” he said.

“The retirement living sector – and its financial options – are heavily regulated by state and territory legislation, while some communities are also governed by the federal Aged Care Act. These acts are consistently reviewed by governments and are typically reviewed every five years – and appropriately so.

“Throughout these reforms, industry continues to be motivated by a desire to increase consumer confidence, raise standards, and pursue better regulation and transparency. We have worked with governments in recent years to inject more certainty, clarity and transparency into contractual processes because we want simpler contracts.”

The Retirement Living Code of Conduct was designed to help raise standards in the sector. However, as a voluntary industry code, less than half of the sector has signed up for it since 2020. The RLC supports the code becoming mandatory – indicating this would be a major step towards improved resident rights – while also calling for contracts to be written in plain English.

Respecting the resident

One of the recurring themes this week’s 7.30 has tapped into is the fact that older consumers are fragile or vulnerable. The negative portrayal blankets over the reality that the average age of entry into a retirement village is 75 – just eight years post-retirement age – and many people entering retirement communities have independently managed their affairs for decades.

There are instances where residents will have some form of cognitive decline, and in these cases, all necessary supports should be provided. 

Meanwhile, the Australian Human Rights Commission released Shaping Perceptions: How Australian Media Reports on Ageing on Tuesday with the Aged Discrimination Commissioner, Robert Fitzgerald AM, explaining that the media shapes and influences the way the public sees and thinks of older people.

“We were able to identify that there was good reporting in relation to older people on a number of occasions. There were positive stories about older people. But overwhelmingly, we saw a negative approach to the reporting of older people and their issues,” he said.

“This is particularly true in seeing them as a burden in terms of the costs that will be incurred in relation to health care and aged care. A burden in relation to the care that needs to be provided to people. A view that somehow older people are diminished both in terms of their rights and their valuing in our Australian community.”

In particular, the report found “a prevailing narrative of decline, frailty and vulnerability, and a framing of older Australians as both fundamentally powerless and an impending social and economic burden”.

This narrative does few favours for older people and organisations providing care or housing for them. 

Instead, the focus needs to be on working together. Mr Gannon said this is not an “us versus them sector” and the peak body will continue to work closely with residents to ensure expectations are met for everyone.

Additionally, retirement village operators need to ensure their communication efforts are consistent, understandable and meaningful. Contracts also need to be fair with examples from 7.30 that show cats are not allowed in homes, or that musical instruments are banned because they’re too loud, highlighting how retirement living can continue to improve.