By: Retirement Home Insider retirementhomeinsider.com
How to choose the best retirement home possible, is a tough decision to make.
While the process can be full of anxiety and stress, congregate senior living can be a positive life changing experience to reignite the mind, body and soul.
Having helped thousands of seniors and their families move into retirement communities, we’re going to make it easier for you by highlighting four critical things to know about retirement home leases.
We get it – the ins and outs of retirement home leases are not the sexiest topic on the web, but we’ll try to keep it interesting!
Use the Table Of Contents to jump to your burning questions, or read the whole article – it really is interesting!
Click Here For The Ultimate Guide To Choosing The Best Retirement Home In Senior Living
Signing a retirement home lease is probably the third largest financial decision you’ll make in your life.
Often, the decision to move into a retirement home can be sudden from the loss of a spouse, to a fall, to family meetings over the holidays.
Once you’ve picked the community, it’s time to sign the lease.
Retirement Home leases are not boiler plate contracts.
Some of been written by lawyers on a contingency – you’ll run out of ink before you finish printing the document.
In order to avoid conflict later, slow the pace of lease discussions to take the time you need. Try not to rush the process until you get a handle on some of the key items below.
However, if time is short (and you’re under pressure to make a move), key in on items 1 & 3 – negotiate the lowest possible rent, and understand your exit terms.
Start Here
Ask for a copy of a blank lease, along with a fee schedule, prior to meeting with the home to review. Even if time is short – this gives you a head start in understanding the terms of the agreement.
Use those documents with the information below, and you should be in good shape to make a confident decision.
1 – Incentives Are More Negotiable Than You Think
Companies Always Chase Month End & Quarter End. Use This to Your Advantage
Sales Advisors understand how hard it is to convert a lead in senior living. Most homes average 4-5 move ins per month (some larger ones move in more – but they also have higher resident turnover).
They nurture sales leads anywhere from a couple weeks to a several years.
Almost all companies and properties offer some sort of promotion or incentive. Incentives run the gamut – from subsidized moving expenses, free communication packages, to one month or two months free.
Negotiating Better Terms
Use month end (or especially quarter end) dates to your advantage. Public traded companies have to answer to analysts and private companies have a board to present to.
End of month occupancy percentage and quarter end occupancy results, are very important bonusable metrics for leaders in senior living and is something everyone in the company reviews constantly.
Let’s use a retirement home that has uses a monthly rental lease as an example.
Assume that with their current promotions, they are offering one month free.
You might be able to get an add in of free parking, or no rent increase after year one, or early move in date for no charge simply by asking for it.
Since retirement homes chase occupancy results at the month and quarter end, they will want you to take occupancy by the last day of the month to count your suite as “sold” on the books.
Still keeping with the example above, imagine you’re targeting a move in date for April 13th. The house is sold and your family is free to help make the big move.
If you sign a lease, most homes will “give you” those 13 days free so you take occupancy by April 1st.
In addition to the incentives, you also have more time. Time to paint, pack, etc.
One final note – out of all the incentives you can get, reduced rent or reduced annual increases are the best incentives to try to get because of the potential compound financial savings. However, not all homes will have this available.
You never know until you ask – don’t be afraid to push or stack several incentives!
Make Your Home Safer For Seniors – Ideas We Love
2 – Types of Retirement Home Leases & How They Work. Also, Entrance Fees
Money is Always Better Off in Your Pocket – Not Theirs
Talk about a dog’s breakfast. There are so many different types of leases out there, it’s hard to categorize them all. Let’s see if we can clarify a few of them.
First – Entrance Fees
Some homes ask for an entrance fee. An entrance fee is a sum of money (sometimes large) that you pay in addition to a monthly rent.
Entrance fees normally come in 2 types:
One – An “exclusive” independent retirement community sometimes have an entrance fee – it mostly acts like a membership fee or a club fee.
Entrance fees of this nature are simply a buy in. While the property may tout added advantages, you’re just paying to be a part of the club 🙂
Two – More common entrance fees are care related – think of them as insurance for your future care needs. These entrance fees are large sums of money that are “put aside” by the residence for your future use when and if you need it.
These homes are essentially taking a large sum of money to provide care for you later down the road.
These types of homes are often referred thought of as one stop shops – you move into independent living, and as you need care (assisted living or memory care), the home will provide care for you – for no additional cost.
Overall, while your individual circumstances may differ, it’s usually best to avoid properties that require large entrance fees.
Why You Should Avoid Entrance Fees
One – packages almost always have exclusions. That’s why healthcare insurance is so messy nowadays – there is an arbitrary approach to what’s included and what’s not included in these package contracts.
You usually have tiers you can choose from – Type A to Type D. Read the fine print, but you’re going to need a lot of ink.
Two – Entrance Fees don’t guarantee against future bankruptcy, ownership change, foreclosure.
Three – There are numerous clawbacks built in for the money you deposit – so if unforeseen circumstances dictate that you are moving out after only a couple years, you will be out more money than you want to be.
Four – Entrance Fees don’t guarantee that full staffing will be always be available – labor issues are significant for hospitals nowadays and yet they pay the very best of any organization. Facts – retirement homes do not pay front line team members well.
Retirement communities can’t guarantee that they will have the staffing you need, at some point in the distant future.
In the end, entrance fees offer some cost certainty, but not necessarily service certainty, and definitely not flexibility.
Another way to look at it – have you ever purchased an extended warranty for a vehicle, only to find out your problem isn’t covered?
These types of arrangements are really no different. If you go for the Cadillac – Type A plan – everything is included,
I can almost guarantee you, that you will lose financially in those situations.
7 (And 1/2) Important Questions For Executive Directors of Retirement Homes
If you can earn money on your personal savings or equity to offset what future price increases in care might be, it’s probably your best approach.
Keep your money for your own earning potential.
Keep your money for your flexibility.
Most importantly, keep your money for your own personal choices.
You have no idea how much, or how little, care you will need in the future.
General Types of Leases
Month-to-Month & Fixed Term Leases
How They Work:
- Residents pay rent monthly, usually with 12 month terms.
- The lease typically includes living accommodations and basic services (e.g., some meals, housekeeping, bistro use and programming).
- What’s included can be variable between companies, but standard within the home itself. For example, breakfast is included for everyone at one home, but not another.
- Deposits may be required – the lease should lay out the terms for refunds.
Pros:
- Easier to leave if you don’t like the place.
- Easier to leave if personal or financial circumstances change.
- No long-term financial obligation. Exit terms are usually more favorable.
- Better for shorter term occupancy if another move might be in your future.
Cons:
- Potentially higher rent month to month than a lease with longer lease terms (kind of like how cellular companies work their phone contracts).
- No guarantee of long-term stability should your health needs change.
- Limited financial predictability around future price increases, though local tenant laws still in effect to help protect against those crazy increases.
Life Lease (Life Care or Continuing Care Retirement Community Lease)
How They Work:
- Residents pay an upfront entrance fee and a monthly fee. Occasionally some properties guarantee a monthly rate for life without an entrance fee.
- These types of leases guarantee housing and care for the resident’s lifetime, transitioning from independent living to assisted living or skilled nursing care as needed.
Pros:
- Comprehensive care plan for life – helps with those who like to plan, reducing uncertainty.
- Smooth transitions between levels of care.
- There can be tax benefits due to the healthcare component.
Cons:
- High initial entrance fee (can be $100,000–$1 million+). Usually these fees cannot be refunded, or some of the upfront fee may be refundable if you move out very early. Refunds almost always come with penalties.
- You’re out a lot of money if you don’t like the home.
- Monthly fees may still increase over time – either tied to inflation or “operating costs”, so the cost certainty is not so certain 😊.
- Interest on your entrance fees almost always goes to the company.
- Some plans only include some services – you may still be out of pocket for future expenses if you are not on a” Type A” plan.
- Not ideal for those who may not need all levels of care.
- No guarantee of service levels, or availability of a suite when a higher level of care is needed.
Rental Lease with Service Package
How It Works:
- A typical lease where residents pay rent and add fees for optional services (e.g., meal plans, transportation, or housekeeping).
- Common in more independent living communities.
- Often these communities will have 3 levels of living – Independent, Assisted & Memory Care. Most Assisted Living and Memory Care levels have some sort of service package associated with living in those areas, increasing the rent.
- You may be able to purchase one off or a la carte purchase options, before committing to a package.
Pros:
- Flexibility to choose services based on personal needs.
- Lower costs for independent and self-sufficient residents.
- Depending on the home you can phase in service needs over time.
Cons:
- Unbundled services will become more costly later if additional needs arise.
- Some of these leases may have an all or nothing component – for instance you have to buy a monthly package instead of a la carte as you want it.
- Some of these homes have limited health care options, so long term stability isn’t guaranteed.
Equity Lease or Buy-In Model
How It Works:
- Residents purchase a housing unit (similar to buying a condo) and pay monthly maintenance fees. Popular for townhome models.
- Usually these homes are a part of a community – so some activities may be included.
- In some cases, a portion of the buy-in price is refundable upon leaving.
Pros:
- Builds equity, which may appreciate over time.
- Can be a better model for more independent residents if they want to downsize, but retain some equity in their property.
- Some communities allow heirs to inherit the unit or the refund value.
- Predictable monthly costs.
Cons:
- Can be a significant initial cost.
- Sometimes the regulations on what you can or can’t do to the building can be restrictive. For example, you can only paint the garage a neutral color, or not at all.
- Sometimes the regulations on what you must do, can be onerous. For example, HVAC repairs must go through certain vendors, or routine maintenance must be done on schedule and paid for by the owner.
- Usually only the unit itself is available for purchase – the company owns the land itself.
- May be difficult to resell if the community has restrictions on who it gets sold to, limited demand for the units, or during economic downturns.
7 (And 1/2) Great Questions To Ask About Safety During A Retirement Home Tour
3 – Dollars & Sense (End of Lease Terms/Rebates for Absences/Fee Schedule)
The Devil Is Always In The Details
End of Lease Terms
There are only two ways to end a lease – your choice – or their choice. End of lease terms (such as 30 day notice period) will be specifically spelled out in a clause.
The home can usually only serve notice to end a lease when:
- The resident poses a safety risk to other residents.
- The resident poses a safety risk to themselves and the home cannot adequately provide for their safety.
- The resident is engaging in behaviour that is impacting the quality of life or enjoyment of the home by other residents.
- Non payment of rent
Notice needs to be written and must refer to appropriate clauses in the lease.
Most likely there would be multiple discussions and/or warnings with the home to try to make this an amicable transition.
You can terminate a lease yourself with written notice – again you will be subject to the terms you sign off on.
Normally if the resident is no longer in the suite (say because of death), there are some refunds for not being in the building.
For example, many homes will refund partial rental amounts if the suite gets re-rented before the notice period is up.
So if it’s a 30 days notice, and you get the suite cleaned out 10 days later, and someone takes possession after 15 days, you should receive 15 full days of refund.
Remember no matter what actions a home takes, they are still subject to local tenant laws and governmental body oversight.
Absence Rebates
Most leases will refer to absence rebates to lay out what rebates you can get when you’re not physically in the building for a specified period of time, such as a hospital stay.
The credit normally only kicks in after an absence of a couple weeks to a month, sometimes longer.
The amount credited only applies to a daily meal per diem.
If you are on a service package (say daily med admin reminders), you’ll want to clarify if refunds kick in immediately upon an absence or not. This is usually a subject of debate with the home.
Fee Schedule
With every lease comes a fee schedule. The schedule will list out prices for everything from lunch meal tickets, to the cost of a beer, to the cost of an hour of nursing assistance.
In the lease there will be a clause that indicate what type of notice is required before prices can go up and by how much.
4 – Grievance & Complaint Procedures & Residence Regulations
Sometimes Things Don’t Work Out As Planned
Houston, We Have A Problem!
Grievance or complaint procedures are not always spelled out in the lease, so you want to understand the process behind how to resolve any problems that arise.
When you sit down to sign the lease, you’ll have an opportunity to raise this question.
Normally, resident complaints can go to a resident or family council.
If you have a complaint around a particular service or staff member as a family member, normally speaking with the department lead or Executive Director can get this resolved.
Try to resolve the issue with the property first before escalating to regional leaders if you think it is of significant concern.
Additionally, the lease will point out which regulatory body can assist with your problem, if you are unable to resolve it with the property or the company.
Make sure the concern is specific to you and specific in nature – saying “everyone hates the food” is not helpful to anyone.
Rules & Regulations
As touched on earlier, there are certain clauses that will speak to what you can and cannot do within a residence.
Normally these refer to things such as smoking or pets, or around overnight guests.
Sometimes they refer to physical alterations to the suite and who can do the work.
For example, if you want to change out a light fixture, the home may rightfully stipulate that it has to be done by a licensed electrician as they need to mitigate risk to the residents and the building.
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