Article by Guest Contributer
(Vir Afrikaans kyk Lewensreg in 'n Afree-oord )
Purchasing a life right in a Retirement Village is increasing in popularity. The benefits are many, the opportunities are there and one is spoilt for choice. However, a legal minefield exists, as there are about 20 pieces of legislation that apply to the elderly. You can buy into a sectional title, or you can buy a life right, or outright ownership. It depends on how the developer registered the property and how he is selling it and where you are purchasing that will determine what you can buy.
See also other advice on Property Law in SA
There is a difference between a housing scheme for retired persons and a development which is a Sectional Title scheme in terms of the Section Title Act, Act 95 of 1986. Another form of development is the share block in terms of the Share Blocks Control Act 59 of 1980. So if you are buying a life right in a Retirement Village, a developer would have registered the development as such.
Since this article pertains to a life right, I will not discuss all the other legislation and by-laws that may be applicable. I will also not discuss your rights if you purchase into a section title or share block scheme.
If you purchase a life right in a Retirement Village, the agreement will be, inter alia, subject to the HDSRP Act. You must be 50 years plus to be able to buy a life right in a Retirement Village.
In terms of this Act, a 'life right' is defined as follows: “ in relation to a housing development scheme, means any right to claim transfer of the land to which the scheme relates, or to use or occupy that land”.
A person who purchases a life right in a retirement village, purchases right to occupy the property for the rest of his/her life, in return for the payment of a fixed amount. I will refer to the fixed amount as the purchase price. The purchase price can be paid in one amount by the purchaser, or it can be paid off – it will depend on the developer, or another seller. The home owner’s association or the body corporate will be able to also charge a levy on top of the price that the purchaser pays for the housing right (the purchase price).
The purchaser can live in the retirement village for the rest of his/ her life. We are not going to get technical in this article. I am just giving you broad information about a life right in a Retirement Village. There are conditions that can be imposed when you purchase the life right. Each case will have to be dealt with on its own merits. In general, a purchaser of a life right can live in the property for the duration of his/her life.
The HDSRP Act contains a number of prescriptions about the agreement when purchasing a life right in a Retirement Village. First of all, as with all property transactions, the purchase agreement (or referred to as the sale agreement) must be in writing and signed by all parties concerned (the purchaser and the seller. The seller, or the purchaser, can be represented by an agent. There must be proper authorisation for the agent. This means that unless a signed resolution exists if the seller is a company, close corporation or trust, or a special power of attorney that complies with the requirements, you should not sign any agreement if the seller is represented by an agent unless the correct document is produced.
First of all, the purchaser chooses the language of the agreement. The seller of the life right in a Retirement Village cannot insist that you sign a contract in a language of his/her choice. Since this is prescribed by the HDSRP Act. There is no way out for the seller.
The HDSRP Act is very clear upon these requirements. The contract must contain certain information. If the contract does not comply with the HDSRP Act, it is invalid.
If the seller is a developer, the contract must be clear on who the parties to the agreement are. Like with any other agreement, the purchaser and seller must be identified by setting out their full names, identity numbers or registration details and addresses. What is important for the purchaser to look out for, is that there must be precise description as to the legal grounds on which the life right is sold. This means that the developer must have certain rights to be able to sell the housing right and the development should have been registered as such and comply with all the legislation on top of the HDSRP Act.
What the purchaser is buying must be clearly described in the agreement. This means that the period of the life right must be set out and all other limitations and rules that may exist that may apply to the life right. This part is most probably the most important for any purchaser and one should approach this clause in an agreement of purchasing a life right in a Retirement Village with extreme caution. In my opinion this forms the heart of the agreement. What exactly you are buying, what the life right means, what your rights will be in terms of the life right, what you can and cannot do with it, must be crystal clear as this clause will determine whether you are buying value for money or a disaster. It should leave absolutely no room for error or leeway either.
The agreement to purchase a life right in a Retirement Village must also contain a statement as to whether the life right is registerable, as well as a statement as to whether the Title Deed of the land has been endorsed. Whether the land has been endorsed means that when a developer develops a piece of land, the land is registered in the deeds office as a development. (I am sparing you the technical details). The Title Deeds of the property of which you are purchasing a life right of, should have been endorsed in the Deed’s office on the Title Deed of the property. The endorsement should note that the property Is subject to a housing development scheme. The endorsement means that the Registrar will put a certain stamp with notes on the original Title Deed and this is done in terms of the Endorsement of Title Deeds Act of 1990. A developer is not allowed to sell a life right in a Retirement Village unless the Title Deed has been endorsed in the Deed’s office. If the developer fails to endorse the Title Deed and proceeds to sell the life right, he can commits and offence and can be fined R20 000 or send to jail for 5 years. So it is clear that this requirement is very important.
Of course a very important further requirement is that the contract must clearly describe the land concerned with an erf number as well as a unit number, if there is a unit number. The size of the property on which the life right is purchased must be described and the contract must also state in which magisterial district the property is situated. The seller must set out in the agreement whether he/she is the owner of the land or if there is another reason that will make him/her entitled to sell the life right in the Retirement Village.
This means that if the seller is the owner of the land in which the life right is being sold, then that is fine and the seller will state so. Sometimes the seller is not the owner of the land but the owner of the life right itself. In such a case the seller must state in the contract who the owner of the land is, and also give the details of the owner. The seller must set out what gives him/her the right to sell the land and for what period the seller has ownership of the life right.(the seller’s right to sell would be an existing purchase agreement when the seller originally purchased the life right). If the seller is not the owner of the land, he/she must go one step further and give a statement in the agreement as to where the purchaser or any interested party can find a document which confirms that the seller has a right to sell the property (such as for example an endorsed Title Deed, or a copy of the agreement when the life right in the Retirement Village was originally purchased.
If there is a bond on the property, the seller must give clear details of who the bond holder is, what the name, address, registration details and amount of the bond are.
The HDSRP Act states that the amount of the purchase price (the Act refers to “consideration”) must be set out in the agreement plus what the percentage interest is, if any, that will be levied on the purchase price if it is paid off. If the amount is to be paid in instalments, the amount of each instalment must be stated, as well as the dates on which payments must be made. For example on the 1st day of each and every month.
In terms of section 6 of the HDSRP Act, a developer may not receive any monies from the sale of a life right in a Retirement Village, unless an architect or a quantity surveyor has issued a certificate which states that the housing development scheme concerned has been erected substantially in accordance with any applicable officially approved building plans and town-planning scheme and applicable local authority by-laws, and is sufficiently completed for the purposes of utilization of the life right concerned.
The contract must contain a clause that a copy of this Section 6(1) certificate was furnished to the purchaser. If the developer has not obtained such a certificate yet when the purchaser wants to sign the agreement, then the agreement must contain a clause that gives a date by when such a certificate will be issued and given to the purchaser.
If any services are to be rendered in the Retirement Village where a purchaser is buying a life right, the contract must contain a statement setting out where the services will be delivered, when it will be delivered as well as what the rights and obligations of the purchaser are with regards to those services. (in other words how the purchaser can use it exactly).
If you need any assistance with the selling or purchasing of a life right, don’t hesitate to contact the author of this article.