Understanding Retirement Village Occupation Right Agreements
The Occupation Right Agreement (ORA) is the most financially significant document most people sign in later life. It is also one of the least understood. This guide explains what it is, what it means, and what to look for before signing.
What is an Occupation Right Agreement?
When a person moves into a retirement village in New Zealand, they sign an ORA — a legally binding contract between the resident and the village operator. It sets out the terms of the residency, the resident’s rights, the village’s obligations, and what happens when the residency ends.
An ORA is not a property purchase. The resident does not own the unit. They have a contractual right to live in it under the terms of the agreement.
LEGAL REQUIREMENT NZ law requires every intending resident to receive independent legal advice from a lawyer experienced in retirement village matters before signing an ORA. This is not optional. The law exists to protect residents — use it.
Types of ORA
Licence to Occupy (most common — approximately 75% of NZ villages)
The resident pays a capital sum for the right to occupy the unit. They do not own the property. On leaving, the capital sum (less the Deferred Management Fee) is repaid.
Unit Title / Stratum in Freehold (less common)
The resident actually owns the unit as property. Capital gains may apply. The Residential Care Subsidy means assessment treats unit title ownership differently from a licence to occupy.
Leasehold
The resident holds a long-term lease. Less common in NZ but exists at some villages.
The Deferred Management Fee — in plain language
When a resident leaves the village, the village deducts a fee from the capital sum before repaying the remainder. In NZ the DMF is typically a percentage of the original entry price multiplied by years of occupancy, up to a set maximum.
A DMF of 10% per year with a maximum of 30% means: after 3+ years, 30% of the original capital is retained by the village
A DMF of 20% per year with a maximum of 20% means: after 1 year, 20% of the original capital is retained regardless of length of stay
WHAT THIS MEANS IN PRACTICE On a $600,000 entry cost with a 30% maximum DMF, the village retains $180,000 when the resident leaves. The estate receives $420,000 back — minus any other deductions. This is the expected outcome, not an exception. Factor it in from the start.
Weekly fees
What is the current weekly fee for this specific unit?
What does it include and what is charged separately?
How has the fee increased in the past five years — and is there a cap in the ORA?
How many weeks of fees continue after a resident leaves?
Capital gains — does your parent benefit?
In most NZ ORAs, the resident does not benefit from any capital gain. The DMF is calculated on the original entry price. If the unit sells for more than your parent paid, the village retains the gain. A small number of villages offer capital gain sharing — if this matters, it must be in the ORA, not promised verbally.
Repayment of capital — timing
NZ law sets a maximum period for capital repayment — the government review of the Retirement Villages Act was examining whether this should be tightened. Verify current requirements before publishing. Ask villages specifically: what has the average and maximum repayment time been in the past two years?
What happens if care needs increase
If the village has an on-site rest home, the ORA should clearly set out what happens when a resident moves from their independent unit into the care facility. The financial implications of this transition are significant and should be understood before signing the original ORA.
Key terms to check in any ORA
The exact DMF calculation — percentage, basis (original price or resale price), and maximum
Whether the resident benefits from any capital gain
How long weekly fees continue after departure
The timeframe and process for capital repayment
Any conditions that allow the village to terminate the agreement
The process for resolving disputes
What alterations or modifications are permitted
Guest, visitor, and pet policies
The process if the village is sold or changes ownership