The law governing retirement villages within New South Wales has recently undergone significant change. According to the NSW Office of Fair Trading, there are approximately 591 retirement villages scattered across New South Wales, accommodating more than 36,000 residents. The effects of the legislative changes in this area are therefore far reaching.
The changes to the Retirement Villages Act 1999 (Act) and the Retirement Villages Regulation 2000 (now replaced by the Retirement Villages Regulation 2009) (Regulations) took effect on 1 March 2010. The changes are retrospective in nature, meaning that, unless otherwise provided for in the amended Act, these recent amendments will apply to all existing village agreements, regardless of when those agreements were entered into. In addition, the Act cannot be contracted out of, meaning that any provisions contained in a village contract that purport to exclude, modify or restrict the Act, will be void.
A Summary of Major Changes
The more salient changes that the amended Act and Regulations have introduced include:
- The requirement for a General Inquiry Document to be provided to all prospective residents (in addition to the Disclosure Statement).
- A 90 day ‘settling-in period’, up until the end of which residents may terminate a Licence Agreement without penalty (except for reasonable costs as prescribed in the legislation).
- Residents will be permitted to remove fixtures and make alterations to their premises with the operator’s consent (which shall not be unreasonably withheld).
- A revision of the treatment of capital maintenance and capital replacement.
- Operators will be required to meet budget deficits.
- A reduction in the maximum period that an operator can continue to charge a former resident recurrent charges after that former resident has moved out or passed away.
- Introduction of a statutory charge in favour of each resident to protect their ingoing contribution.
General Inquiry Document
In addition to the Disclosure Statement, operators must now also provide a person with a General Inquiry Document within 14 days after becoming aware that a person is a prospective resident.
The General Inquiry Document is a ‘watered-down’ version of the Disclosure Statement. It is only required to contain information pertaining to the village as a whole, rather than to specific residential premises. To date there is no prescribed form of General Inquiry Document contained in the new Regulations.
In addition to a resident’s cooling off rights (which provides a resident with a right to rescind a village contract within seven business days after entering into it), the amended Act now provides a resident with an additional 90 day settling-in period. Unlike the cooling off period, which is waived if the resident commences to live in the residential premises, the settling-in period allows the resident to occupy the premises. Before the end of the settling-in period, a resident may terminate a village contract by vacating the premises or providing the operator with written notice of his/her intention to terminate before the end of the settling-in period.
The ‘end of the settling-in period’ means:
- 90 days after the date on which the resident is entitled to occupy the premises;
- 90 days after the resident first occupies the premises; or
such date as may be agreed upon by the operator and the resident.
If a resident terminates a village contract during the settling-in period, that (former) resident will only be obliged to pay:
- fair market rent for the period (if any) during which the resident occupied the premises;
- the cost of any repairs for damage to the residential premises in excess of fair wear and tear; and
- a reasonable administration fee (not exceeding $200.00).
Renovations and Alterations
A new section has been inserted into the Act which provides residents with the right to undertake
renovations and alterations to fixtures and fittings, and to the residential premises. Whilst the written consent of the operator is required (in most cases), the operator must not unreasonably withhold consent.
Whilst an operator cannot unreasonably withhold consent, the grant of consent can be subject to reasonable conditions. For example, the consent may be granted subject to the condition that on termination of the resident’s Licence Agreement, the premises are returned to the same condition as they were in immediately before the consent was given.
Capital Maintenance and Replacement
The amended Act has clarified much of the confusion that existed in the previous Act in relation to the responsibility for capital maintenance versus capital replacement.
The operator is responsible for the maintenance and/or replacement of any item of capital within the village, other than an item of capital that is owned by a resident of the village. The amended Act has a new definition of what constitutes capital maintenance. Works are capital maintenance if they are carried out for the purpose of repairing or maintaining an item of capital. The Regulations specifically prescribe works which are capital maintenance works and those which are not capital maintenance works. Capital replacement has, under the amended legislation, become any works that do not fall within the definition of capital maintenance.
The new legislation provides that the operator may fund the cost of capital maintenance from:
- a capital works fund; or
- the recurrent charges,
and, therefore, the residents indirectly pay for all capital maintenance.
However, the operator MUST bear the cost of capital replacement.
The amended Act also now provides a resident with the right to carry out capital maintenance or replacement in respect of an item if it is urgent and the resident first gives the operator a reasonable opportunity to carry out either the maintenance or the replacement of the item. The operator must then reimburse the resident for the reasonable costs incurred.
A deficit is to be made good by the operator of the retirement village.
Unlike under the previous Act, an operator must now not:
- carry forward a deficit (except where provided by the Regulations*);
- request or receive from the residents any special additional payments for making good a deficit;
- increase recurrent charges for the purpose of making good a deficit (except where provided by the Regulations*);
- use any of the recurrent charges to make good a deficit (except where provided by the Regulations*); or
- use any of the capital works fund to make good the deficit.
The operator must not charge residents interest in respect of a deficit.
A major change in the amended Act in relation to the payment of recurrent charges by non-owners (which
includes residents occupying premises pursuant to a licence agreement) is that the maximum 6 month period previously contained within the Act, following which the operator had to assume responsibility for the recurrent charges (worst case scenario), has beenreduced to 42 days.
Therefore, 42 days is now the maximum period that operators can charge residents recurrent charges once the resident has vacated the premises. It may be earlier where a new village contract is entered into, or a new resident takes up residence in the premises etc.
The operator must pay the former resident’s recurrent charges from the date on which the former resident’s liability to pay the recurrent charges ceases until the date on which the operator enters into a village contact with a new resident.
* As at 20 September 2010 the Regulations do not contain any such exceptions other than deficits caused by certain maintenance expenses and certain increased costs
Protection of Ingoing Contributions
Where an ingoing contribution is payable by a resident (other than a registered interest holder/owner) and all or part of that ingoing contribution is to be refunded to the resident, then upon the date on which a village contract is entered into, a charge over all the land within the retirement village is created, which charge secures the entitlement of a resident to a refund under the village contract.
This is a new section which applies retrospectively i.e. to all village contracts even if they were entered into prior to 1 March 2010. Consequently, a charge will be created in relation to all village contracts for the village.
However, this new section does not apply to any refund which does not exceed the amount prescribed by the Regulations, namely $10,000.00. Therefore, where the amount of the refund is less that $10,000.00, no charge over the land is created in favour of the resident.
We have set out above some of the major changes that the amended Act and Regulations have introduced, however this article is by no means an exhaustive list of the changes contained within the new legislation. Although not mandatory, all operators should have by now amended their village contracts so as to ensure that they comply with the new legislation. It would also be prudent for residents to familiarise themselves with the more salient changes to the legislation so that they are fully aware of their rights and obligations there under.