There are many retirement home models available to prospective retirees in South Africa today, with the three most prominent options being:
- buying in a sectional title scheme
- securing life rights to a unit in a life rights scheme
- investing in a share block scheme
Making the correct decision can be a daunting task and therefore, it is important for prospective retirees to acquaint themselves with an understanding of what each separate model entails before being able to make an informed decision in line with their own specific needs and personal preferences.
- Sectional Title Scheme:
Sectional title ownership is a fairly familiar concept to most people in South Africa today as it is a popular means of residential housing for people of all ages. Although not exclusive to retirement homes/villages, sectional title schemes are nevertheless a popular choice for many retirement homes/villages and for that reason is worth consideration and discussion. From the outset, sectional title schemes are governed by the provisions of the Sectional Titles Act 95 of 1986, which requires that a body corporate, consisting of all the various unit owners in the retirement complex, be formed for the purpose of assuming responsibility for the day-to-day running and financial management of the common property. Important distinguishing factors to consider pertaining to sectional title schemes are as follows:
A retiree who decides to purchase a unit in a sectional title scheme acquires full ownership of the unit and an undivided share in the common property. As a result, a formal transfer of property must take place and registration must be effected through the Deeds Office.
Consequently, there are additional costs for which the purchaser will be liable before transfer can take place such as conveyancing/transfer costs, bond costs (if subject to finance), and transfer duty (if applicable).
Additionally, the residents or unit owners of the complex/village are responsible for ongoing maintenance and cost management pertaining to the respective retirement complex.
Another important factor to consider is that once the unit has been purchased and transfer has taken place, the property forms part of and vests in the owner’s estate meaning he/she is able to bequeath the property to family members/loved ones upon his/her death in terms of a Last Will and Testament.
- Life Rights Scheme:
Although materially and structurally different to the concept of sectional title schemes, life right scheme structures are another popular choice for retirement homes/villages and developers to utilise. Purchasing a right in a life right scheme may be a desirable option for a prospective retiree due to its less formal and cost-effective nature, all the while maintaining some similarities and functionality to the lifestyle dynamic offered by sectional titles schemes. Purchasing a right in a life right scheme will bring about some legal consequences and implications worth consideration:
When purchasing a right in a life right scheme, the purchaser does not acquire ownership of the unit/property but rather purchases a right to live, reside and use the unit for the remainder of his/her life. Ownership of the unit does not pass hands and the developer/owner of the retirement complex retains sole ownership of the unit.
The right to live, reside and use the unit ceases upon death of the retiree and such right then reverts back to the owner/developer of the retirement complex who is then able to resell the right to a new prospective purchaser.
This right cannot be alienated and therefore, cannot be bequeathed to family members/loved ones upon death in terms of a Last Will and Testament. However, upon resale of the right after the retiree’s passing, the retiree’s deceased estate will receive the original purchase price initially paid for the right (this can vary from scheme to scheme).
Since there is no transfer of ownership, purchasing a right in a life right scheme can prove to be more cost-effective as there are no transfer costs payable by the retiree.
The responsibility of ongoing maintenance and upkeep does not fall upon the shoulders of the residents, but rather the owner/developer of the retirement complex due to him/her retaining sole ownership of the unit.
- Share Block Scheme:
Share block schemes are generally run by property holding companies and subject to the Share Blocks Control Act 59 of 1980. In contrast to both sectional title schemes as well as life right schemes, a retiree who elects to purchase a share in a share block scheme does not take transfer of or acquire ownership of the property, neither does he/she acquire a right to live, reside and use the property, but rather purchases shares in and becomes a shareholder of the company which owns the retirement complex/village. Factors to consider in this regard are as follows:
When a retiree purchases shares in a share block company, he/she is issued with a share certificate and becomes a shareholder of the share block scheme.
Residents are required to sign a use/occupation agreement which entitles him/her as a shareholder, to use and occupy a unit for as long as he/she remains a shareholder of the company.
Again, in this instance there is no transfer of immovable property and ownership of the unit is retained by the share block company. This in turn results in lower acquisition costs for the retiree as no transfer costs are payable however, transfer duty can be applicable upon the acquisition of the shares depending on the purchase price.
The acquired shares can be alienated and can thus be sold at any time by the retiree during his/her lifetime at which time he/she will cease to be a shareholder of the share block company. Likewise, the shares can be bequeathed to heirs upon death in terms of a Last Will and Testament however, it is important to note that share block schemes generally impose a minimum age for residents to live in the complex/village (generally 50 or 60 years old). In other words, if an heir of a retiree inherits the shares from the deceased estate, they will not be able to reside in the complex/village unless they satisfy the minimum age criteria of the respective complex/village.
The directors of the share block company are responsible for all management decisions and each shareholder is required to contribute to a levy fund which is used to account for the running and ongoing costs of the complex/village. It is also important to note that the maintenance and/or repair costs pertaining to the shareholder’s unit are the responsibility of the respective shareholder.
In light of the above, navigating the retirement home environment for a prospective retiree is no easy task and evidently, there is a lot to consider depending on one’s personal preference and financial position. This article is not to be construed as legal advice but rather serves as a basic outline of the various retirement home options available and their respective legal implications. Should you find yourself contemplating retirement and potentially buying into one of the abovementioned schemes, we strongly advise consulting an attorney to assist you with making the best possible decision for your future retirement.
Article by Liam Labuschagne
