What Is The Right Choice For Retirees? Life Right vs Sectional Title
Preparing to move into a retirement scheme is not as simple as selling your home, packing boxes and moving into the new place. Nowadays there are various purchase options available, the most prominent being sectional title ownership and life rights. Choosing the one or the other must be an informed decision as these are very distinct legal concepts.
If the retirement scheme offers the opportunity to purchase a sectional title unit in the scheme, the retiree-purchaser will acquire ownership thereof. With that comes the advantage that the owner is by law granted a say in the management of the scheme. It is further ideal as a long term investment opportunity that remains aligned with inflation and allows for capital growth. Purchasing a sectional title unit can be costly, but has the advantage that it is a personal asset that can be utilised as you wish.
Buying a life right is entirely different - and a concept that many South Africans do not completely understand. In practice, the agreement usually involves the following (but there are many variations):
- the seller (be it the developer or an individual owner of a unit in a scheme) offers a purchaser the right to reside in the housing unit for the duration of the purchaser's lifetime, together with rights to the use and enjoyment of communal facilities in the scheme; and
- the price payable by the purchaser is usually (not always) a rent-free loan.
For example: Pretend the "purchase price" is R 1 million: The agreement will stipulate that the purchaser pays the money to the seller, who may then apply it as he (the seller) thinks best, but with the proviso that the loan amount, on termination of the agreement (i.e. when the purchaser passes away or terminates the agreement), will be paid in full or in part to the purchaser or to his deceased estate, as applicable. Or, it can be agreed that 80% or 90% of the original loan amount would be repaid to the purchaser upon termination. Another option is to agree that the amount to be repaid to the purchaser will be calculated as the loan amount minus a monthly deduction (say R 1000) for each month that the purchaser occupies the unit.
Acquisition of life rights is sometimes cheaper than purchasing a sectional title unit and it does not involve conveyancing costs and transfer duty, expenses that are very likely to be payable when acquiring a sectional title unit. It is important to note that the life right option is not an investment in fixed property and therefore is not an asset that grows in value. Remember also that in the sectional title option, the levy and rate responsibility increases yearly, whilst many life right schemes fix the increase in levies over the years to provide more security to the occupant.
When looking into retirement estates it is best to consult with an attorney about which option best suit your lifestyle and retirement plans.
For more legal information about the difference between the 2 types of ownership, please contact STBB attorneys at info@stbb.co.za.