What is a licence to occupy?

Licence to occupy

A licence to occupy, which is often referred to as an occupation right agreement (or ORA), confers on a person the right to occupy a unit within a retirement village in New Zealand.

With a licence to occupy you purchase the contractual right to occupy a property, but you have no legal ownership of the property itself or the land.

Here are some typical characteristics of a licence to occupy:

• You have a contractual right to live in the unit (or villa, apartment, etc.) for as long as you choose.
• An ‘outgoings’ fee, which is usually paid monthly, will entitle you to have use of various communal facilities, services and amenities offered by the retirement village.
• It is unlikely you will receive any capital gain on the resale of the unit after the termination of your licence to occupy*.
• You can’t borrow against the value of the unit, although in some cases the operator may permit you to borrow against the termination proceeds you will be entitled to when the licence ends.
• In most cases, the village operator will control the sales process of the unit once your licence terminates, and you may not receive your termination proceeds until a new resident moves in.

Capital gains policies vary from village to village; please contact the sales manager for more details.

Occupation right agreements (ORAs) explained

An ORA is an umbrella term for any occupancy contract you enter into with the operator of a retirement village. It sets out the terms of your occupation, including your rights and obligations, and those of the operator.

A licence to occupy is a type of ORA, and is the most common form of occupation on offer in retirement villages in New Zealand.

In New Zealand, every intending resident is required by law to seek legal advice prior to signing an ORA (under the Retirement Villages Act 2003).

Benefits of licences to occupy

A licence to occupy allows you to enjoy the benefits of living in a retirement village without the burden of property ownership and worrying about the potential need to sell the property someday in the future, as the village operator is generally responsible for resale.

Another benefit is transparency and predictability. Terms, conditions, ongoing charges and fees are agreed at the outset, removing much of the uncertainty from financial planning.

Questions to ask a sales manager about a licence to occupy

Licences to occupy vary from village to village. It’s important to ask the sales manager plenty of questions about their specific licence before you commit. As noted above, you will also need to obtain independent legal advice from your lawyer before you sign a licence to occupy or ORA.

• Checklist: Important questions to ask village sales managers
• Checklist: Important questions to ask your lawyer

What are some alternatives to a licence to occupy?

Although a licence to occupy is the most common form of ORA to grant an occupation right for a unit within a retirement village, other forms of ORA do exist.

You may also come across unit titles or rental agreements.

Unit titles

Some retirement villages offer stratum in freehold units or apartments (called unit titles). This usually means that you own the property and have some control over when it is sold (and whether you or the village operator sells it), and that you’re entitled to any capital gain. Villages that offer unit titles also tend to have a lower age-of-entry, usually between 50 and 60 years of age.

The exact ownership terms for unit titles varies from village to village. Below, we have outlined some different scenarios to provide guidance about how unit titles typically work in New Zealand retirement and lifestyle villages.

One scenario is for a developer to manage the build of the village, then once all the properties have sold the village is essentially run by its residents who all form the body corporate (similar to how a residential apartment block might operate but with some exclusions from the Unit Titles Act).

Another scenario is for the body corporate to appoint the operator to manage the village. In this scenario, you would be responsible for maintaining the inside of your unit, and village staff would maintain the exterior, the village grounds and any communal areas.

In both cases, residents would be required to pay a body corporate village fee to cover costs.

Every unit title is different so it’s important to discuss the terms thoroughly with the sales manager or contact person.

Questions to ask sales managers about unit titles

• Who owns the communal areas of the retirement village?
• Is there a village manager, and do they live on-site?
• Who is responsible for the upkeep and maintenance of communal areas?
• What are my responsibilities for the maintenance and upkeep of the unit?
• How much is the periodic body corporate fee or village fee and what does it cover? What costs are not included in this fee?
• Will body corporate or village fees increase over time?
• Is there a deferred management fee and what are the terms?
• Are there any requirements regarding the standard of the unit before it is resold, e.g. will I need to replace the curtains, carpet, etc?
• What facilities and services does the village offer and are these included in the village fee or do they need to be paid for separately?
• Who is responsible for the resale of the unit when I leave? If the village is responsible, will there be a sales or marketing fee and will I be required to pay any ongoing charges or fees during the marketing period?
• What entrance criteria does a new resident need to meet?
• Is the village registered under the Retirement Villages Act 2003?
• Can I have guests to stay or can I rent the unit to another person?

A note on rental units

A very small number of retirement villages offer rental units. Most village rental agreements are residential tenancy agreements.

In summary

Licences to occupy are the most common way to live in a retirement village in New Zealand, although exact terms and conditions vary from village to village. You may have the option of purchasing a unit title or entering into a rental agreement, but these legal titles are less common. As with any contract, it’s important to consult a lawyer before making a commitment.

Further reading