License to Occupy vs. Ownership: What’s the Difference?
For New Zealanders aged 65 and over considering a retirement village, understanding the difference between a License to Occupy (LTO) and outright ownership is key. These two options offer different legal rights, financial outcomes, and lifestyle implications. Here’s what you need to know.
What is a License to Occupy?
With a License to Occupy, you don’t own the property. Instead, you sign an Occupation Right Agreement (ORA) that gives you the legal right to live in a specific unit within the village.
Main Features
- Upfront Cost: You pay a lump sum for the right to live in the unit, but you don’t hold the title.
- Deferred Management Fee (DMF): When you leave, a portion (usually 20%–30%) is deducted from your original payment.
- No Capital Gains: If the unit’s value increases, the gain goes to the operator, not you.
- Resale Managed by Village: You can’t sell or transfer the unit yourself. The village handles that.
- Ongoing Fees: Regular fees cover things like maintenance and shared facilities. Some villages offer fixed fees; others don’t.
Pros
- Less responsibility — no rates, no repairs*
- Access to community and support services.
- Clear costs and expectations.
Cons
- You don’t own the asset.
- Exit costs and deductions can reduce your return.
What is Outright Ownership?
Some villages offer freehold or unit title options. In this case, you actually own the home and have your name on the title.
Main Features
- Ownership: You hold legal title to the property.
- Capital Gains: If the property increases in value, the gain is yours.
- Flexibility: You can sell, or mortgage it — subject to village rules.
- Personal Responsibility: You manage rates, insurance, and maintenance (possibly with a body corporate).
Pros
- Build equity and benefit from appreciation.
- More control over your property decisions.
Cons
- More responsibilities like repairs and rates.
- Property values can go down as well as up.
- Added complexity with body corporate rules.
Which One is Right for You?
It depends on your priorities. If you want simplified living with fewer responsibilities, a License to Occupy might suit you better. If building equity and owning property matter more, ownership could be the way to go.
Whichever option you’re considering, always seek legal advice before signing. Retirement village contracts are detailed and can differ between operators.
*Subject to the clauses in your ORA.
