Life rights for senior citizens in retirement villages: A checklist for attorneys

RETIREMENT VILLAGE

Life rights for senior citizens in retirement villages: A checklist for attorneys

WARNING: This does not constitute legal advice. You are however  strongly advised to seek legal advice on this topic of retirement villages. It is complicated matter.

General Introduction

The laws applicable to entitlement in respect of immovable property has seen dramatic changes brought about by modern society. Retirement villages (RVs) are being built in every province and retired people buy into these RVs – some to their financial detriment while others are completely satisfied. Some 24 years ago the Housing Development Schemes for Retired Persons Act 65 of 1988 (the Act) was promulgated. The main purpose of the Act is to regulate the RV industry.

Retired persons should look out for a RV that will suit their special needs best. Some RVs provide medical care, high security and related facilities and some cater specifically for the elderly who are debilitated.

Retired persons want a safe haven that will care for them in their old age while they can live relatively independently. Such a person is prepared to buy ‘life rights’ in a RV. It is referred to in the Act as a ‘housing interest’, which is available exclusively to those who are 50 years or older. ‘Life rights’ and ‘housing interests’ should be treated as different names of the same thing.

This section of the commercial sector in South Africa is heavily regulated by about 20 statutes, regulations, municipal by­laws and charters applicable to the elderly. This article will only describe in concise terms the applicability of the Act.

There were some drastic changes and new additions to the statutory laws in the past 24 years. The Act has been amended three times and the regulations were amended once. The Aged Persons Act 81 of 1967 (interlinked with the Act) has been repealed in its entirety and was replaced by the Older Persons Act 13 of 2006 and regulations.

The documentation of any home for the aged in operation and registered prior to 1 April 2010 should therefore be inspected closely to bring it in line with the requirements of the Older Persons Act and its regulations.

A housing scheme for retired persons should not be confused with a development scheme in terms of the Sectional Titles Act 95 of 1986 or a share block scheme in terms of the Share Blocks Control Act 59 of 1980.

A retired person is someone who is 50 years or older. In other statutes, such as the Older Persons Act, the threshold is 65 years or older for males and 60 years or older for females.

These life rights are normally sold the first time by the developer or by estate agents. A person who sells a housing interest for the first time is also a developer.

The agreement should be in writing (s 2)

It is obligatory that the agreement be reduced to writing and signed by all the parties. If the contract is signed by agents, the agent’s authority should be in writing. The law pertaining to contracts entered into by trusts and/or companies to be formed is intact and should be followed implicitly (s 2).

If a client has not signed a written agreement, regard should be had to s 8(2), which might come to the rescue of a seemingly hopeless situation.

Checklist for the contents of the contract (s 4)

Section 4 prescribes the contents of the agreement.

Below is a checklist based on s 4:

• The names of the purchaser and the seller and their residential or business addresses.

• What is the legal basis for the housing interest?

• How long will the person have the right of occupation?

• Is the housing interest registerable?

• Has the title deed been endorsed that it is subject to a housing development scheme?

• Is the property described properly? In what magisterial district is it located?

• Is the seller the registered owner? If not, who is?

• If someone else is the owner, more information is required, for instance, on what basis does the seller sell the life rights? The contact details of the owner should be available.

• Is the land subject to a mortgage bond? If it is, how much is outstanding? How much of the purchase price will be used by the seller to repay the mortgage bond?

• How much will the life rights cost?

• What is the amount of interest payable annually? What is the rate?

• If payable in instalments, how are the instalments calculated?

• When are these instalments due?

• Have you received a certificate issued by the architect or quantity surveyor that the RV was erected in accordance with the approved plans? If not, when will it be received?

• If there are house rules, where are these kept and when can they be inspected? What kind of services or facilities do you buy? Are there nursing care and frail care available? Are these services and facilities available to you? Is the RV mainly for debilitated people?

• What official language do you want the contract to be in?

• When will you be able to move in and when will the risk pass?

• Whose responsibility is it to take out insurance?

• Is there an amount payable as endowment, betterment or enhancement levy, a development contribution or anything similar? If yes, to whom and how much is outstanding?

• Who will pay for the contract and the transfer of the life right?

• If the seller is the owner of the land, he or she should assure you that he or she will not take out a further mortgage bond.

• If you are entitled to have the land transferred to you, when and how much will you have to pay? Who will attend to the transfer?

• You should be given an estimate for the next three years what the expenditure for the control, management and administration of the RV and all the services and facilities will be. It must also be clear who will be liable to pay it and assurance must be given that you will not be billed for it over and above your monthly levy.

• The levy should be clearly spelled out for at least two years in advance.

• If you have not received the architect’s or quantity surveyor’s certificate, you may cancel the agreement and institute a claim, or you may abide by the agreement and not pay any interest.

• Exactly how many life rights are there in the housing development scheme?

• The management structure or proposed management structure should be spelt out.

• The regulations can prescribe anything else that should be included into the contract.

The title deeds should be endorsed (s 4C).

The title deeds of the property should be endorsed that it is subject to a housing development scheme, failing which a person may be fined R20 000 (maximum) or alternatively sentenced to five years’ imprisonment.

Endorsements are prescribed by the regulations relating to the Endorsement of Title Deeds published 31 August 1990. Any developer may request the registrar to endorse the title deeds, even if it is not necessary to have them endorsed.

If the housing interest is sold for the first time (s 6)

If a housing interest is sold for the first time, the developer should give the purchaser the following three documents:

• A certificate by an architect or quantity surveyor that the housing scheme has been erected substantially in accordance with the approved building plans and not in contravention of any by­laws. This certificate should also state that the building is sufficiently completed for the purposes of the scheme.

• The purchase agreement that complies with section 4 of the Act.

• A certificate that the title deeds to the land have been endorsed to the effect that the property is subject to the housing development scheme.

A developer may not receive any consideration or any part of it, without giving these three documents to the purchaser. If he or she does, and he or she is subsequently found guilty for being in default, in a criminal trial he or she may be fined R20 000 or alternatively be sentenced to five years’ imprisonment.

The deposit may, however, be paid into the trust account of an attorney or an estate agent. If the deposit is paid to the developer, he or she should give the purchaser an irrevocable guarantee issued by a financial institution that the money will be paid back to him or her if the developer fails to perform in terms of the agreement. However, if the developer becomes insolvent, then the money paid becomes immediately due and payable to the purchaser.

RVs exclusively for retired persons (s 7)

The right to occupy this property is reserved exclusively for the retired person or spouse and nobody else. All the owners may grant written consent to someone else than a retired person to occupy the land. Contravention hereof is an offence and liable on conviction with a fine of maximum R1 000 or six months’ imprisonment.

You should therefor differentiate between ownership and the right to occupy the property. In essence it means that a person younger than 50 years of age may be the registered owner of that specific property, but is excluded from living there until he/she attains the age of 50.

Consequences of contracts that are void or cancelled (s 8)

There are various consequences that flow from contracts that are void or cancelled.

Section 8(1) is very involved and should be read with great care.

Consequences of defective contracts (s 8(2))

It is quite clear that a contract should be in writing and signed by the parties, failing which it is of no force or effect.

Section 2(1) is unequivocal about this; it is, however, subject to s 8(2).

The legislature made provision for those occasions where there is no written contract. If a purchaser has made full payment and the land has been transferred to him or her, then this alienation is valid from the beginning. The same applies to a housing interest that has been transferred.

Relief the court may grant (s 9)

This section assists the purchaser first and foremost and sets out the relief a court may grant in respect of disputed contracts.

If a contract does not comply substantially with s 3 (the language the contract has been written in) or s 4 (the contents of the contract), the purchaser has a claim. If the seller has failed to comply with any obligation of the contract or has contravened any provision of a regulation and the purchaser has suffered any prejudice, then litigation might ensue. It is extremely wide and may be abused by purchasers who are at loggerheads with sellers or developers.

The court retains its wide discretionary powers supplemented by s 9. A court may –

• in addition, reduce the interest rate applicable if it is just and equitable;

• order rectification of the contract; or

• declare it void ab initio; or

• grant alternative relief.

The regulations

If a housing development scheme is erected in terms of the Act then these regulations are applicable.

If it is developed in terms of the Sectional Titles Act or as a share block scheme in terms of the Share Blocks Control Act, then regulations 7 to 14 are not applicable.

Definitions such as ‘accommodation’, ‘common property’, ‘facilities and services’, ‘housing development scheme’, ‘the managing agent and the managing agreement’ should be looked at carefully.

The developer is under compulsion of the law to have a host of prescribed documents ready to give to an intended purchaser. It is safe to state that the contents of most of these documents were already alluded to in the discussion above about the contents of the contract (s 4).

The penalty for non­compliance is R 6 000 or 3 years’ imprisonment.

Conclusion

The Act is not perfect.

It is an attempt to regulate the market and to protect a retired person. These housing schemes are very popular and in high demand. If the contract complies substantially with the law as stated above, it might be assumed, all other things being equal, that it is relatively safe to enter into such a contract. If a developer is diligent, he or she should consult a lawyer before embarking on such a development scheme.

This article was first published in our Attorney's magazine DE REBUS 2013. DE REBUS granted me permission to publish it on my blog and I do acknowledge their consent herewith: Thank you. 

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