The NSW Governments inquiry into the State’s retirement village sector, led by Kathryn Greiner AO (Greiner Report) identified key areas to be improved upon within the sector, including:
- Increasing transparency surrounding exit entitlements and contracts;
- Clarifying the funding arrangements for ongoing maintenance costs shared between resident and Operator; and
- Providing more support for dispute resolution.
Since the inquiry the NSW Government introduced a series of amendments that have already been made under the Retirement Villages Amendment Act 2018. The previous amendments can be read here.
The most recent reform, the Retirement Villages Amendment Act 2020 (Amending Act) came into force on 1 January 2021 by way of proclamation, with the Retirement Village Amendment (Exit Entitlement) Regulation 2021 made on 4 February 2021. The Amending Act relates to the key issues identified in the Greiner Report. Further, the much anticipated Retirement Villages Amendment (Asset Management Plans) Regulation 2021 commences on 5 February 2021 and introduces the regulations around Asset Management Plans within Retirement Villages.
This article summarises what is new:
- Aged care payments to be made by Operators using the resident’s exit entitlement;
- The new criteria for early access to exit entitlement money;
- 42 day cap on recurrent charges for general services; and
- Introduction of Asset Management Plans.
Implementation of reforms
We summarise the new requirements, practices and procedures as follows:
Aged care payments
When a former resident moves into an aged care facility the resident can require the Operator to pay the Daily Accommodation Payment (DAP) to the aged care facility. The resident must include the following information in their request to the Operator:
- Name of aged care facility;
- Date of entry or proposed entry; and
- The amount of the DAP payable.
This payment must be made to the aged care facility until:
- The retirement village unit is sold;
- The former resident dies or vacates the aged care facility; or
- 85% of the exit entitlement (excluding any capital gains or loss) is reached.
This is available to residents who have a registered long term lease with an entitlement to at least 50% capital gains. It does not apply where the unit is a lot in a strata scheme or a community scheme.
The entitlement is not available to residents who entered an aged care facility prior to 1 January 2021.
Exit entitlement orders
Residents can apply to the Commissioner for Fair Trading for an order to receive their exit entitlement, if their unit remains unsold for the following periods:
- 6 months in the metropolitan area (local government areas will be listed in the Regulation), or
- 12 months in other areas.
The metropolitan area extends to the Blue Mountains and Hawkesbury and includes the City of Newcastle and the City of Wollongong.
These periods starts 40 days after the first of any of the following occurring:
- The date the property is first advertised for sale;
- The date the resident permanently vacates the property, including returning all keys to the property to the Operator; or
- If the resident doesn’t intend to move out of the property while it is for sale, the date the resident gives written notice to the Operator of their intention to stay in the property while it is for sale.
Please note that this period does not apply to former residents paid part of their exit entitlements by way of aged care accommodation payments. In this case the period starts 2 years after the former resident moved into an aged care facility.
For residents with units for sale before the commencement of the Amending Act this period commences on 1 January 2021.
The earliest a resident will be able to apply for these orders will be from mid-August 2021. This takes into account the 6 month notice period for those in metropolitan areas and the 40 day period.
Which residents can apply?
Exit Entitlements orders are only available to residents who are registered interest holders under a long term lease, entitled to at least 50% of any capital gain. This does not apply when the unit is a lot in a strata or community scheme.
How will exit entitlements be calculated?
The exit entitlement is to either be agreed between the outgoing resident and the Operator or an independent property valuer will assess the exit entitlement, the estimated sale price for the property and any capital gain.
The exit entitlement must be agreed or assessed prior to a resident applying for an exit entitlement order.
When will the Commissioner make an order?
The exit entitlement order will be made when the Commissioner is satisfied that the Operator has unreasonably delayed the sale of the retirement village unit. The Operator may make submissions to the Commissioner.
Cap on recurrent charges
As anticipated in the discussion papers that followed the Greiner Report, the 42 day limit on the length of time Operators can charge for general services after a resident permanently vacates has been extended.
When a resident vacates, recurrent charges for general services remain payable for a unit. When the resident is not a registered interest holder and the unit remains vacant the recurrent charges are payable by the Operator from 42 days after the resident permanently vacates. When the resident is a registered interest holder and the unit remains vacant, previously after 42 days the recurrent charges were shared in accordance with the share of capital gains.
From 1 January 2021, when the resident has a long term lease with at least 50% capital gain, the obligation to pay recurrent charges ceases after 42 days. However, this does not apply to:
- Residents who own a lot in strata villages;
- Residents who own a lot in community villages; or
- Residents who own shares in company title villages that offer residence rights.
This provision will apply to residents in a village when their financial year commences on or after 1 July 2021. Those who have already moved out between 1 January 2021 and 1 July 2021 can request the Operator deduct the charges from their exit entitlement.
Asset management plans
All Operators will now have to put in place and maintain an asset management plan for the villages capital items. This plan is to be accessible to current and prospective residents and will include the following details:
- Costs associated with maintaining and replacing items of capital
- Reasons for decreases or increases in costs
- How often costs are incurred and the expected lifespans of items
- Maintenance and replacement requirements of items of capital.
It is important to note that the regulations have allowed time for Operators to prepare their asset management plans and comply with the Retirement Villages Amendment (Asset Management Plans) Regulation 2021. Penalties for non-compliance will commence in the second half of 2021.
Updated village documents
The Standard Form of the Village Contract has been updated to provide for the Amending Act including:
- Item I – Payment on termination calculation.
- Item L – Liability for recurrent charges.
There are also minor changes to the General Inquiry Document and the Disclosure Statement.
It is prudent that retirement village Operators review their current processes to ensure they have systems in place to manage these new reforms including requests for accommodation payments and updated village contract. Operators should take reasonable steps now to ensure they have compliant asset management plans in place prior to the penalty provisions commencing in the second half of the year.
This article was written by Christopher Conolly, Partner and Tom Prestwidge, Solicitor.