Unravelling the Life Right Model when it comes to retirement – by Phil Wilson – Evergreen Lifestyle

Covid-19 has made South Africans acutely aware of the need to remain socially distanced from one another – and while their lives may depend on this, the resulting loneliness and isolation experienced by the elderly has created huge cause for concern.  Families living apart from elderly parents have become rightly concerned about the impact that the pandemic and social distancing has had on the mental health of their loved ones, and this has brought the debate around what constitutes the best possible retirement solution into sharp focus. 

Adult children seeking safe lifestyle options for elderly family members are increasingly looking at retirement lifestyle villages, which are generally sold under sectional title – a concept familiar to most South Africans – or the lesser-known Life Right, which has gained widespread popularity in developed countries like the USA, UK, Australia and New Zealand.  

One of South Africa’s leading providers of retirement accommodation, Evergreen Lifestyle operates on a Life Rights basis. With six villages in the Western Cape and one in Gauteng, and further villages planned for the Helderberg region and KwaZulu-Natal, it offers a range of accommodation including freestanding 2- and 3- bedroom houses, and smaller 1 and 2- bedroom apartments. 

Evergreen Lifestyle’s Phil Wilson breaks down the primary questions that many prospective buyers ask when considering purchasing a retirement home via the Life Right option.

1. What exactly is a Life Right?

Simply put, a Life Right confers upon the Life Right holder the right of occupation for life, but not the right of property ownership, which resides with the developer in perpetuity. So the purchaser and his or her spouse purchase the right to occupy a home in a retirement village for the rest of their lives, but not the property itself. 

2. How is it different to sectional- or full-title ownership?

A Life Right rivals a traditional bricks-and-mortar property investment in that its primary objective is to offer a stress-free retirement lifestyle; it is ideal for people who do not wish to take on the responsibility of maintaining the property themselves, or having to deal with burdensome issues such as property insurance, security, repairs, and landscaping.

With both sectional and full-title ownership, the purchaser buys ownership of the property and takes transfer of it. The owner is therefore responsible for all legal costs relating to the transfer of the property, along with rates and taxes, normal and special levies. With a Life Right, however, there is no actual transfer of property ownership, and no payment of bond registration fees, transfer duty or VAT.  

4. How are the levies determined, what do they cover, and how are they inflated in the future?

Monthly levies cover the utility cost of communal services, areas, and shared facilities. Levies are calculated and communicated in advance so that purchasers know exactly what they will be expected to pay on a monthly basis.  The law dictates that levies should be calculated two years in advance, so that residents are aware in advance of any levy increases. The additional bonus of a Life Right is that levy shortfalls are underwritten by the developer, and no special levies are ever required as the developer owns the real estate and is obliged by law to maintain it at their expense.  

At Evergreen residents enjoy the benefit of lower than market related levies because we generally develop villages of scale in order to make them more affordable and economical to run.

5. When the Life Right is terminated, what happens to the original investment?

When the Life Right is terminated, either by the residents themselves (who can terminate the contract at any time) or as a result of the death of the last surviving spouse or partner, it reverts back to the developer who will then resell it.  In terms of what the original purchaser or their estate gets back once the unit is resold, this will depend on the original contract signed. 

6. How long does it take for the investment amount to be paid back?

This depends entirely on the developer. For example, at Evergreen payment is not made directly to ourselves, but rather to our conveyancing attorneys – STBB – who will issue you with a legally recognised and binding Life Right certificate.  When the Life Right is terminated, the property is immediately refurbished and placed back on the market for resale. Proceeds from the resale are again paid directly into the account of STBB, who immediately reimburse the former Life Right holder or their estate.  

We follow a very regulated process which mirrors that of a normal property transaction, so that our Life Right holders have the security and peace of mind in knowing that the funds from the resale of their property are ring fenced. 

7. What if my Life Right doesn’t sell?

I can’t speak for other developments but in our twelve years of operation, that has literally never happened.  Aside from market related conditions, over which we have no control, we always use our best endeavours to resell a Life Right as quickly as possible, because it is in our mutual best interests to do so.

8. Are all Life Rights the same? 

Apparently not. The Evergreen Group has continuously refined and enhanced their ‘Partnership for Life’ value proposition to include a number of proprietary non-standard benefits like flexible pricing, cashless transfer from house to apartment, and more.

Flexible pricing is made possible because the Life Right is linked to the percentage of capital that is returned to a retiree’s estate on termination of the contract, which means that the price can be tailored to fit their budget. By adjusting the capital return in the Life Right agreement, we are able to offer homes and apartments below the listing price, making them more affordable to a wider number of retirees.  

This initiative has proven very popular, particularly given the current weak economic climate and the impact of COVID-19 on retirement living. Being able to move into a home at a reduced price allows retirees to lower the price on the sale of their family homes, leaving them in a cash-neutral position.  

We are the only retirement developer able to offer flexible pricing on this scale, due to the financial strength and impeccable track record of the Evergreen Group and its shareholders, the Amdec Group, and PSG Alpha Investments.