ABA Family Legal Guide

The Rights of Older Americans

Housing and Long-Term Care Options

Retirement Communities

What purchase or payment arrangements do retirement communities offer?

Conventional independent-living communities without health services typically involve home ownership or rental arrangements that are similar to standard real estate purchases or rentals. These transactions are governed by local real estate or landlord-tenant law, and residents pay the costs of their mortgage or lease, and condominium or association fees if applicable. In facilities that promise additional services, accom-modations, or health care, the payment arrangement includes some mechanism to pay for these added benefits. One may distinguish four basic types of contract, based on payment arrangement, although keep in mind that state regulations may categorize facilities differently:

1. Turnover-of-assets or total-fee-in-advance contracts without monthly fees. These types of contracts are all but extinct today. They were common in the original continuing care communities, often called life care communities, developed by religious or fraternal organizations. Many communities using this model failed, because the assets received by the sponsors were not sufficient to keep up with rising health-care expenses of residents over their lifetimes.

2. Entrance-fee-plus-monthly-fee contracts. Entrance fees, ranging from $20,000 to over $400,000, are charged by most continuing-care retirement facilities today. An entrance fee may represent a partial prepayment for future services. It normally does not buy an interest in the real estate. Increasingly, CCRCs are providing greater refundability of entrance fees, even 100 percent refundability, although this usually results in higher monthly fees. Residency rights and obligations are governed by a long-term lease or occupancy agreement. Monthly fees are subject to periodic inflation adjustments, and, possibly, adjustments when the resident's level-of-care needs change.

3. Pay-as-you-go contracts. With no entrance fee, these contracts are essentially straight rental arrangements with a defined set of services included in the fee or available when needed for an additional charge. Most assisted-living and an increasing number of continuing-care facilities offer this arrangement. This type of contract involves no initial investment, but it is subject to greater changes in monthly fees, since the resident assumes most or all of the financial risk for services.

4. Condominiums or cooperatives with continuing-care contracts. Retirement communities that offer an ownership interest to residents under a condominium or cooperative arrangement with a service package included are relatively new to the scene. These ownership/contractual arrangements are unavoidably complex and bring with them special advantages and risks.