Understanding life rights

Affectionate seniors enjoying rest on sandy beach on sunny day

When it comes to buying your retirement home, you need to decide between the freehold, sectional title and life right models.

While the first two options are generally well understood, the life right model often causes confusion.

“Purchasing a life right means you will acquire, for a capital sum, the right to occupy the housing unit for the remainder of your life. This right is not the same as ownership of a property, but is similar to the rights of a long-term lease,” says Peter Quinn, CEO of non-profit organisation Rand Aid Association.

The housing unit remains the property of the developer. “You, therefore, do not receive a title deed and transfer duty is not applicable.” In essence, life right ownership is an investment in a carefree lifestyle, security and peace of mind.

What happens when you die?

Upon the death of the life-right holder or the last joint life-right holder, the right reverts back to the developer, who will resell the unit. Developers must disclose upfront if the original purchase price – or a percentage of the original price – will be paid into the deceased’s estate.

Need to know

Just Property advises that life right purchasers do the following:

  • Ask for an in-depth breakdown of the T&Cs, rules and regulations, as these differ from place to place.
  • Determine if you will be allowed to modify your home.
  • What levies are applicable, and what do they cover? Knowing what your monthly levies cover will make it much easier to budget and plan your monthly living expenses. It will also give you a good way to compare value for money in different retirement estates.

What’s the difference between a life right and a sectional title?

Once sectional title units have been built, the developer packs up and leaves, leaving the long-term management of the retirement village to its body corporate, which elects trustees, explains Quinn. “The trustees are normally fellow residents who then appoint a managing agent.”

With life rights, the developer remains involved ‘with a high level of interest in the resale value of the units’. In this way, residents enjoy occupation for life without the hassle associated with property ownership.

Life right pros

Chartered Wealth Solutions says the life right option is generally more budget-friendly than full ownership, especially on a monthly cost basis, for the following reasons:

  • Life rights units are often sold at a lower cost than outright ownership units.
  • Levies cover all external maintenance, security, perhaps a meal a day, care of the garden, a swimming pool if there is one, and all communal areas.
  • No transfer fees are paid upon purchase.
  • No rates and taxes need to be paid every month.
  • If you run out of money, most villages will not throw you out. The cost of your continued care is deducted from the capital amount you paid upfront, or you may be offered more affordable accommodation within the estate.

Life right cons

Be aware of these disadvantages, says Just Property:

  • Cannot be inherited: Life rights apply to the life-right holder and their spouse only, and can’t be endowed on the passing of the life-right holder.
  • Be careful of the pay-out model: Different resale models determine what percentage of the original price, as well as the profits after resale, will be paid out.
  • Strict rules on occupancy: Only the life right-owner or nominated occupant may live in the purchased unit.