Retirement village buyback update for NSW, QLD and WA

Arthur Koumoukelis, Lucinda Smith and Julie McStay

November 3, 2020

Aged Care Legislation Updates Retirement Villages

Mandatory buyback rules are under review across a number of states in Australia. In this blog we provide an update for retirement village operators on the status of buyback schemes in New South Wales, Queensland and  Western Australia.

New South Wales

The Retirement Villages Amendment Bill 2020 (Bill) is currently being considered by the NSW Parliament, with the first print of the Bill recently published here.

The Bill seeks to introduce new rules that will enable village residents to receive their exit entitlement (refund calculated in accordance with their village contract) earlier than they would have otherwise received under the current rules.

The new rules will apply only to those residents who are registered interest holders and have their village contract in the form of a registered long-term lease that entitles them to at least 50% of any capital gain. Importantly the rules will not apply to residents who are registered interest holders in a strata scheme, community scheme or company title village. The key features of the Bill are summarised below.

It is intended that once passed and proclaimed to commence, the Bill will generally apply to existing village contracts.

However:

  • if the premises are for sale immediately before the commencement of the new exit entitlement order rule, the prescribed period commences when the new rule comes into effect;
  • the new aged care rule does not apply to a former resident who has already entered an aged care facility and permanently vacated their premises when the new rule commences.

Exit entitlement orders

A former resident will be able to apply to the Secretary of the Department of Customer Services (Secretary) for an exit entitlement order directing the operator of the village to pay the former resident their exit entitlement if the premises are not sold within the period to be prescribed by the regulations.

The prescribed period is proposed to be 6 months for villages in the Sydney Metropolitan Area and 12 months for villages in all other areas. The prescribed period will start 40 days after the former resident permanently vacates the premises or notifies the operator that the former resident will continue to occupy the premises while the premises are for sale.

The following would also need to be satisfied for the Secretary to make an exit entitlement order:

  • the operator and the former resident agreed on an estimated value of the premises or it was determined by an independent valuer;
  • the operator was unable to show it had not unreasonably delayed the sale of the former resident’s residential premises.

The regulation may prescribe what matters the Secretary must consider when determining whether an operator has unreasonably delayed the sale.

The operator will be able to request the Secretary to approve a longer period to sell the premises, after which the former resident will be able to apply for an exit entitlement order.

Aged care rule

A former resident whose premises are not yet sold and is moving to residential aged care, will be able to request the operator to make daily accommodation payments (DAP) to the aged care facility where the former resident is to reside.

An operator who is requested to pay a DAP may apply to the tribunal for an order to extend the time for payment or to exempt the operator from having to make the payment. The tribunal may make an order only if it is satisfied that making the payment would impose a significant financial burden on the operator.

The operator will not be required to pay a DAP if: the payments reach 85% of the resident’s exit entitlement; the village premise are sold; the former resident asks to stop the payments; the former resident does not enter the aged care facility; or the former resident dies.

42 day cap on general services charges

A resident of a leasehold registered interest, who permanently vacates their premises, will no longer have to pay for general services after 42 days from their departure.  This brings the position for leasehold registered interest holders into line with the current provisions for non-registered interest holders.  Other registered interest holders such as strata title will continue to be liable to pay recurrent charges after 42 days based on their share of capital gains.

The Bill does not specify how this additional cost will be addressed  between operators and continuing residents.  Based on the comments in the second reading speech, this is an issue which will be addressed by regulation.

The changes to general services will not commence until the first financial year on or from 1 July 2021.  Subject to changes from the parliament, the Bill is otherwise expected to commence on 1 January 2021.

The Bill is the last major piece of reform in the sector following the Greiner review.

If you would like assistance to discuss issues raised by the Bill, please contact Lucinda Smith or Arthur Koumoukelis.

Queensland

The Minister for Housing and Public Works has appointed an independent panel to determine the impact of the 18-month timeframe for payment of exit entitlements on residents, former residents, families and operators (including resident-operators) of retirement villages in Queensland. While it is unlikely the panel will recommend industry-wide changes to the buyback rules, the panel is expected to look closely at the impact of the buyback scheme on freehold retirement villages. Notably, prior to the recent State election, the Attorney-General of Queensland committed to revisit the impact of the buy-back provisions to residents of several freehold villages.

The buyback provisions were introduced in Queensland in 2017 and at the time it was uncertain whether the provisions extended to freehold retirement village units. In April 2019, the Retirement Villages Act 1999 (Qld) was amended to extend the buyback scheme to retirement villages with freehold units.

Many stakeholders in the retirement village sector raised concerns about the decision to extend the buyback scheme to freehold units. Some of the key issues facing freehold unit owners include:

  • Retirement villages that are owned and operated by residents generally do not have the financial resources to fund a buyback of units as many residents are pensioners and retirees.
  • Resident operators can apply for an extension of time to buyback a unit, however:
    • even a successful application for an extension only provides a temporary solution;
    • the application is a public record of the operator’s inability to fund a buyback and this may deter potential residents from purchasing a freehold unit knowing that they would be required to help fund any future buybacks.
  • These factors are likely to affect the demand and value of freehold units and the commercial viability for developers to develop freehold retirement villages in Queensland in the future.
  • Resident operators do not have a controlling right to sell freehold units. It would therefore seem inequitable that resident operators would be required to buyback a unit in the event that the former resident has not effectively marketed the unit or failed to reinstate the unit to marketable condition.
  • Before a unit can be marketed for resale, the former resident usually has to vacate the unit, complete reinstatement work and appoint an agent and often this process takes many months and this in turn erodes the 18-month period.
  • Residents don’t have a right to stay the buyback period in circumstances where they believe they will be disadvantaged by the mandatory sale of their unit. For example, residents in rural areas have expressed that they would prefer to hold out for a private sale on their own terms rather than relinquishing their freehold property rights to the scheme operator under the mandatory provisions.

As discussed above, the Minister for Housing and Public Works has appointed an independent panel to determine the impact of the 18-month timeframe for payment of exit entitlements in Queensland.

  • The panel was seeking input from the community between July – October 2020.
  • The panel will provide its report to the Minister by Monday, 30 November 2020.

If you would like assistance to discuss issues raised in this update, please contact Julie McStay.

Western Australia

Consultation on proposed reforms to the retirement village laws in WA is now underway with the third of six consultation papers released in June 2020.  The second consultation paper (CRIS 2) raised a number of issues for discussion including:

  • whether exit entitlements should be payable within a set time frame (6, 12, or 18 months) after a resident leaves a village;
  • whether there should be special provision for payment of daily accommodation fees for residents moving to residential aged care;
  • if buybacks are introduced:
    • whether operators should have the ability to apply to the State Administrative Tribunal (SAT) for an extension of time to pay;
    • how exit entitlements are to be calculated if a unit is not reoccupied before the time limit.

There is significant concern expressed in the sector about the impact of buybacks in WA given the stagnation of the WA property market since 2014.  In particular there are concerns around:

  • the financial impact on operators, including insolvency risk and noting potential flow-on effects to operators with aged care businesses subsidised by a co-located retirement village;
  • lower sales valuations impacting both operators and existing residents;
  • the buyback being an impediment to further development of WA’s aging retirement village stock given the financial implications of funding a buyback; and
  • the policy rationale of a buyback provision with the prevailing view being that such a policy should only be targeted at those needing to move into residential aged care who are not otherwise assisted by the financial hardship provisions under the Aged Care Act 1997 (Cth).

The Consultation Regulatory Impact Statement 3 (CRIS 3) was also released.  This paper discussed:

  • the particular financial model used to provide retirement accommodation;
  • helping consumers identify a retirement village regulated by retirement villages legislation;
  • the concepts of the retirement village scheme, and residence contracts and asks whether further information about how the village operates should be provided to residents;
  • how the Retirement Villages Act 1992 (WA) should apply to multi-site villages;
  • the protection of premiums paid by residents; and
  • the emerging issues of rent paying residents and sub-letting in retirement villages.

The Government is undertaking a series of consultations to consider industry response to the reforms.

If you would like assistance to make a submission on any of the consultation papers or to discuss issues raised by them generally, please contact Arthur Koumoukelis or Bethany Fielder.

Authors

Lucinda Smith | Partner | +61 2 9020 5748 | lsmith@tglaw.com.au

Arthur Koumoukelis | Partner | +61 2 8248 3437 | akoumoukelis@tglaw.com.au

Julie McStay | Partner | +61 7 3338 7522 | jmcstay@tglaw.com.au 

Maryna Roganova | Senior Associate | +61 2 8248 5881 | mroganova@tglaw.com.au