18 March 2015


Draft Retirement Villages Bill in SA

On 25 February 2015, the South Australian Government released draft legislation which is intended to replace the current Retirement Villages Act 1987 (SA) (Act). The consultation period relating to the draft Retirement Villages Bill 2015 (Bill) is open until 24 April 2015 and the Government is inviting submissions from industry groups, residents and the public.

The Bill represents a major overhaul of the regulatory landscape for retirement villages in South Australia and brings its laws more in line with those in force in New South Wales, Victoria and Queensland. Broadly speaking, the primary reforms concern:

  • a resident’s entry into a village, including increased disclosure obligations, but a reduced cooling off period;
  • increased financial management obligations for operators;
  • early payment of exit entitlements in certain circumstances; and
  • increased regulation around dispute resolution and strengthened enforcement mechanisms.

A summary of the key features of the Bill are set out below.

New rules prior to a resident’s entry

  • Under the proposed Bill, operators would be required to provide prospective residents with a standard form disclosure statement (the form will be prescribed by later regulation) simultaneously with their resident agreement at least 15 days before the agreement is executed.
  • Premises condition reports would be required to be provided to prospective residents simultaneously with their resident agreement and disclosure statement. It will be an offence for an operator to provide an inaccurate condition report (s 19(4)).
  • The cooling-off period during which a resident can rescind an agreement will be reduced from 15 to 10 days after signing. The cooling-off period is waived entirely if the resident elects to move into the village before its expiration (s 19(8)).

Increased financial management obligations for operators

  • Operators will be required to present a break-down of the village’s recurrent charges at annual meetings of residents, including what portion of recurrent charges are attributed to management fees. Operators will also have to present a range of prescribed financial documentation at annual meetings (s 26(6)).
  • Operators will be required to adopt a formal policy for dealing with a budgetary surplus or deficit within 6 months of the legislation commencing (Schedule 2, Part 4, s10).
  • Operators will be required to hold at least 2 consultations with the residents’ committee regarding the village budget prior to each annual meeting. However, the requirement for these consultations can be waived by the residents’ committee (s 33).

Early payment of exit entitlements

  • Operators will be required to refund residents’ exit entitlements within 12 months of their departure from the village, regardless of whether their premises have been sold. However, if a resident ceases to reside in a village before the commencement of section 21, the 12 months runs from the date of commencement of the section, rather than the date of exit (s 21).
    • If a resident who leaves a retirement village to enter an aged care facility is required by the facility’s operator to pay an up-front lump sum for entry, the resident may request the early repayment of a portion of their exit entitlement from the retirement village operator to cover that up-front cost. In which case, the retirement village operator would be required to repay the required portion of the resident’s exit entitlement within 60 days of the resident being approved to enter aged care (s 24).

        However, the requirement that the resident must need to pay a lump sum to enter the facility, means that this section as currently drafted will be inoperative as an operator under the Aged Care Act 1997 (Cth) can no longer require a resident to pay a lump sum to gain entry (s 24).

        This section will need to be amended if it is to operate to provide recently departed retirement village residents with early release of part of their exit entitlement to cover daily accommodation payments under an agreement for residential aged care. Early release of exit entitlements to cover daily accommodation payments is likely to be more palatable for operators as it will require the release of potentially a much smaller amount of the resident’s exit entitlement.

        Dispute resolution and enforcement mechanisms

        • A formal dispute resolution process will be introduced including a process for referral to the newly established South Australian Civil and Administrative Tribunal (ss 39, 40).
        • Office for the Ageing (OFTA) authorised officers will have increased powers to investigate breaches of the Act, including the ability to require a person to produce documents for inspection, or answer questions in relation to the operation of a village (s 16).
        • There will be new mechanisms available to OFTA and the Minister for Ageing to prevent the financial mismanagement of villages, including the power for the Minister to appoint administrators to operators in financial difficulty (s 41).

        The Bill is currently scheduled to commence by the end of 2016.

        Further information regarding the Bill and consultation process can be found here.

        Deferred management fees challenged in VCAT

        A group of approximately 10 residents of a Victorian retirement village have challenged the provisions of their resident agreements which allow the operator to charge deferred management fees (DMFs) upon residents’ departure.

        The residents of Willow Lodge Over 50s Resort (Resort) in Melbourne have brought proceedings against the operator of that village, Walter Elliot Holdings (Walter Elliot) in the Victorian Civil and Administrative Tribunal (VCAT) seeking to have the provisions of their resident agreements related to deferred management fees (DMF) declared void on the basis that they are unfair contract terms.

        With a DMF structure being prevalent in the RV industry, an outcome favourable to the residents is likely to have a significant impact on the industry.

        The residents are being assisted by the Consumer Law Action Centre, which has indicated that the DMF in dispute is an amount equal to 4% of the unit’s sale price for each year of residence, up to a maximum of five years (or 20%). While the basis for the claim that the DMF should be voided is not entirely clear, the claim is unlikely to be under the Retirement Villages Act 1986 (Vic) as that Act does not directly regulate exit entitlements.

        The Consumer Law Action CentreĀ  have indicated that central elements of the residents’ claim include the fact that they were retired, elderly, relied on an aged pension for income, not tertiary qualified and lacked commercial or business acumen. The residents also claim that Walter Elliot did not give them an opportunity to properly consider or negotiate the terms of their contracts.

        How this case will be determined in VCAT remains to be seen. However, RV operators should see this case as a reminder that transparency, disclosure and consultation with prospective residents is essential to avoiding discontented residents down the track.

        We will keep you updated on this case as it progresses.

        Review of NSW retirement villages regulations postponed

        As discussed in previous Retirement Villages Alerts, the Retirement Villages Regulation 2009 (NSW) (Regulation) is currently due to lapse on 1 September 2015.

        The NSW Fair Trading Commissioner has now confirmed that the Government will postpone the lapse of the Regulation until September 2016 to allow further time for industry consultation regarding its final form.

        One of the main elements of the Regulation that is often contested is exactly what constitutes ‘capital maintenance’ and ‘capital replacement’ under the Retirement Villages Act 1999 (NSW). As we have previously discussed, uncertainty regarding these terms in the current regulatory regime was brought into focus in the case of Alloura Waters Retirement Village Residents Committee v Living Choice Australia Pty Ltd.

        Our examination of the issues in the Alloura Waters case can be found here.

        We will keep you updated on the regulation review process as it progresses.

        Written by:
        Lucinda Smith | Partner | +61 2 9020 5748 |
        Ruth Hood | Senior Associate | +61 2 8248 3459 |
        Alexandra Adams | Lawyer | +61 2 8248 3466 |
        Ben Cosentino | Lawyer | +61 2 8248 3457 |