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Downsizing the family home and planning for retirement – things to consider when entering an aged care facility and buying a unit “off the plan”

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The recent collapse of big-name developers has had retirees raising questions about the risks involved in purchasing off-the-plan properties as they look to downsize the family house and buy a unit as their new home. With a glut of new unit building construction happening, buying off-the-plan can seem like an affordable and suitable next step, however, there are risks worth considering, explains Attwood Marshall Lawyers Legal Practice Director Jeff Garrett

Introduction

For the past few years, the building industry has faced a perfect storm. Construction costs have outpaced sales revenue and growth, in conjunction with significant delays caused by the COVID-19 pandemic, extreme weather events, and widespread flood damage. Because of this, many construction companies are feeling the financial pinch and it is expected that a number of projects in progress, or set to start, may not be feasible in the current environment.

The most recent casualty has been mid-tier builder Condev Constructions, a well-established award-winning company that began operating 20 years ago.

Condev had 18 projects underway when it collapsed and was forced to appoint a liquidator after failing to secure the cash it needed to support its ongoing operations. Condev was overwhelmed by increased material costs and volatile market conditions.

Seeing a company like Condev Constructions go into liquidation shows us that despite people doing their homework and choosing a developer that is well-established and reputable, there are additional things to consider for retirees who are exploring their options to downsize the family home and facilitate their transition to a unit development, retirement village or aged care facility. Anyone looking to purchase in the current market must consider the market conditions, the type of investment they are making, the legalities of entering into contracts of sale or lease agreements, and how that decision may impact their Centrelink benefits, tax requirements, and estate plan.  

Benefits of purchasing a property off-the-plan

With the high cost of living in urban centres, developments have become more financially viable when developers construct towers. We are seeing this with more multi-storey retirement villages in the works throughout Australia that are close to town centres, hospitals, transport hubs and major shopping areas.

With loads of new developments popping up around the country, buying a new unit can be particularly attractive, taking advantage of low maintenance living, state-of-the-art modern facilities, and stylish apartments. Couples currently looking to make that transition can be sitting in a family home that has appreciated in value substantially over the past few years in the current national property boom.  

For anyone who has signed up to buy a unit off-the-plan before the property boom took off, they may also reap the rewards of entering a new development at an extremely competitive price, whilst leveraging off the increased equity in their family home.

Many retirees may also take advantage of the Federal Government’s downsizer scheme, which was introduced in the 2017-2018 budget, which allows anyone over the age of 60 years old to sell the family home and make a one-off contribution of up to $300,000 to their superannuation balance. This scheme incentivises retirees to scale down their residence, boost their superannuation, and free up critical housing stock.

Risks associated with buying off-the-plan

Because of the property boom and increase in housing values, some unscrupulous developers may use any chance they can get to get out of contracts if the opportunity is available to them.

Until recently, most contracts of sale of off-the-plan properties contained a sunset clause. This clause generally states that if the development hasn’t been completed within a specified period, then the developer and/or buyer have the option of terminating the contract, with the developer refunding the deposit to the buyer.

There have been concerns in the past that developers were intentionally dragging their feet and stalling development to leverage off this clause and terminate contracts so that they could then resell the stock under new market conditions and achieve a higher price.

Some states and territories have put provisions in place to stop developers from exploiting buyers under this clause, however, it is important to understand the risks that can come with special conditions in these types of contracts.

Then there is the separate issue of developers going into liquidation before construction is complete.

When a developer company goes into liquidation and they have active contracts, it is usually the buyers that lose out. It all comes down to the contract people sign when buying off-the-plan units. These types of contracts are loaded in favour of the developers. Developers generally do not like changing the special conditions in their contracts, which can leave the buyer exposed to risk.

In off-the-plan contracts, quite often there is no option for the buyer to terminate the contract if the developer goes into liquidation. That can be a real problem with having a development completed and, in many cases, the buyer will lose their deposit.

How to protect yourself when buying off-the-plan

It is imperative to get trusted legal advice from an experienced, independent property lawyer in relation to the contract you are signing when purchasing an off-the-plan property. The real estate agent or developer sales staff may refer you to a particular lawyer who is acting for many of the buyers and will do the ‘legal work’ at a discounted fee. Be wary of these types of referrals by the agent! They may not be in your best interests.

Off-the-plan contracts are extensive and can be overwhelming and difficult to understand with all the special conditions and plans that are enclosed.

It is these key issues that a lawyer needs to look at to ensure the buyer is safeguarded in relation to the security of getting the property they are buying and protecting any deposit the buyer pays, ensuring it is kept in someone’s trust account until the matter settles.

Buying off-the-plan vs an established retirement village

Purchasing a property in an established retirement village can be a safer option, as the state government legislation of Queensland and New South Wales guarantees the person’s tenure in the retirement village.

This means that if you buy or lease a property in a retirement village or aged care facility, and the complex owner or developer goes into liquidation, you are still guaranteed your tenure under your lease or title deed.

That differs significantly compared to a private contract when buying off a development, where you are at the mercy of whatever may happen in relation to that company you are buying from.

What to consider when downsizing the family home or transitioning into aged care

If you are considering paying any money into your superannuation as part of the process to downsize the family home or transition to aged care, it is important to get advice from an accountant and financial planner to ensure you are adhering to the necessary rules and regulations.

In addition to navigating any superannuation issues, there are also a plethora of other issues that apply to someone transitioning into aged care, including tax issues, Centrelink issues, and legal issues.

An accountant and financial planner who is experienced in the aged care sector can help you implement the most suitable strategy to financially support your transition to aged care, and pay any ongoing fees, without losing any Centrelink benefits. A lawyer will also ensure your best interests are protected and that you understand your rights and responsibilities under the contracts you are signing.

Retirement Village Agreements and Aged Care Facility Contracts are extremely complicated documents that generally are in place indefinitely, only to be terminated either when you pass away or leave the facility.

We’ve seen many people come undone when entering into these types of agreements without getting the right advice before signing the dotted line.

The hidden dangers of entering into a Retirement Village Agreement without advice are that there are often hidden fees you may be unaware of, and clauses that you simply do not understand which you must abide by once you have signed the contract.

It can get extremely messy and expensive if you choose to exit the facility earlier than intended.

In addition to reviewing contracts, selling the family home or transitioning to an aged care facility is a major life event and should prompt you to update your estate plan, including updating your Will and Enduring Power of Attorney documents.

Most aged care facilities require that you have an updated Will and an Enduring Power of Attorney before you enter a facility. This is a time in your life you need to ensure your wishes and instructions align with your intent and that it is properly documented by a professional.

Accredited Aged Care Professionals can help ensure you make the right decision for the long-term

When you are approaching this pinnacle point in your life, it can be beneficial to get together with your family to discuss your intentions and preferences in addition to getting independent professional advice.

Retirement planning and transitioning to aged care can involve extremely complex matters and it is important to get advice from accountants, financial planners and lawyers who understand the industry and act in this area. An will know the care facilities and villages in the area, fees associated with these facilities, what the contracts and service agreements include, and what people need to do to preserve their Centrelink benefits, as well as ensure their estate plan aligns with their retirement goals.

At Attwood Marshall Lawyers, we are one of the few law firms that have an in-house Accredited Aged Care Professional on our team. Senior Associate, Debbie Sage has the expertise to provide her clients with insight and information on the aged care industry, the choices available in accommodation, how the aged care assessment works, Centrelink and Veteran’s Affairs, residential care fees and what people need to understand about entering into agreements, estate planning and the documents that should be done before entering an aged care facility.

Attwood Marshall Lawyers – supporting people through every stage of life

Selling the family home and planning for retirement or aged care can be an overwhelming task. If you are armed with all the information that you need and receive the right advice, you can have confidence in securing the future you want for yourself.

Attwood Marshall Lawyers have a dedicated team of lawyers who practice exclusively in this field to help our clients navigate the complex aged care industry and achieve their retirement goals. We are passionate about ensuring people make an informed choice about their retirement, their living arrangements, and the care they will receive as they get older.

For advice about purchasing property off-the-plan, contact our Property & Commercial Department Manager, Jess Kimpton, on direct line 07 5506 8214, email jkimpton@attwoodmarshall.com.au or free call 1800 621 071. Don’t sign any contracts without getting advice!

To discuss your estate planning needs or transitioning to aged care, contact our Wills & Estates and Aged Care Department Manager, Donna Tolley, on direct line 07 5506 8241, email dtolley@attwoodmarshall.com.au or free call 1800 621 071.

Read more:

Transitioning to aged care in 2022 and understanding the services available for older Australians

Don’t let your fear of missing out (FOMO) stop you from doing your homework and getting the right legal advice before you sign up to buy!

Choosing the right executor for your Will is a crucial decision and one that requires careful thought and consideration

 

 

 

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