Alert - RV Amendment Bill 2008 (NSW)

The Retirement Villages Amendment Bill 2008 (NSW) (the Bill) was given its second reading in the New South Wales Legislative Assembly on 26 June 2008.

The Bill proposes to amend the current Retirement Villages Act 1999 (NSW) (the Act) and will change a number of key financial and operational aspects of retirement village industry practice in New South Wales. If it is passed, the legislation is expected to become law later this year.

The amendments set out in the Bill are designed largely to benefit residents. However, there are also some provisions that improve the position for operators in the industry.

Key Amendments

The Bill sets out to amend the Act in the following key areas:

1. Capital Gain

A much-anticipated definition of 'capital gain' as it relates to a resident's exit entitlement has been included in the Bill. It is defined to mean any increase between the amount the resident paid for their premises and the amount the next resident pays for those premises (less any costs associated with the resale of the premises). This should overcome uncertainty created by recent court decisions.

2. Owner

The Bill replaces the term 'owner' of a premises with the term 'registered interest holder'. The change does not materially affect the previous definition as a 'registered interest holder' is defined as:

1. the registered proprietor of land, a strata scheme lot or community land scheme lot;
   
   
2. the owner of shares in a company title scheme; or
   
   
3. a resident whose right is created by a long term lease (of at least 50 years' duration, including options to renew) and who is entitled to receive at least 50 per cent of any capital gain.
   
   

The rights and obligations of a 'registered interest holder' are revised under the Bill, however.

References to a resident owning or a resident who owns their premises also incorporate the new definition of 'registered interest holder'.

3. Capital Replacement And Maintenance

The Bill imposes further regulation with respect to capital maintenance and replacement of property within villages. This includes:

1. prohibiting an operator from selling, entering into an agreement to sell or otherwise passing on the responsibility for the replacement or maintenance of capital items for which the operator is responsible;
   
   
2. obliging the operator to establish a 'capital works fund' in circumstances where the operator funds capital maintenance or replacement of items (which extend beyond the end of a financial year) from recurrent charges;
   
   
3. with consent of the residents or the Tribunal, provides for the operator to fund up to 50 per cent of the cost of the repair and replacement of capital items from the capital works fund and recurrent charges;
   
   
4. for capital items that are the responsibility of the operator and are located within the premises of a registered interest holder, specifies that the cost of maintaining and replacing those capital items is to be shared between the operator and the registered interest holder in the same proportion as the parties are to share in any capital gain.
   
   

4. Recurrent Charges

Increasing Recurrent Charges

The Bill amends the position in relation to increasing recurrent charges during a resident's occupation:

1. For increases of recurrent charges that under a village contract may be varied in any manner other than by fixed formula:
   
   
   1. limiting increases to one increase in each 12 month period;
      
      
   2. providing 14 days' written notice to the residents (without requiring consent of the residents) provided the increase does not exceed the variation in CPI since the previous period; and
      
      
   3. providing 60 days' written notice to residents (and with residents' approval) should the increase exceed the variation in CPI since the previous period;
      
      
2. For increases of recurrent charges that under a village contract may be varied by fixed formula, providing 14 days' written notice to the residents (without requiring consent of the residents). This is currently the position in the Act and is not amended by the Bill.
   
   

Cessation Of Recurrent Charges

The Bill still retains the distinction between the obligations of a registered interest holder (formerly an 'owner') and those residents with other forms of tenure regarding liability for recurrent charges after a resident permanently vacates the premises.

1. A registered interest holder is liable:
   
   
   1. for the full amount of recurrent charges for a period of 42 days after permanently vacating the premises (unless the premises is resold prior to this time); and
      
      
   2. from the 43rd day onwards until the premises is resold, to share the costs of recurrent charges with the operator in the same proportion as the parties share in any capital gain;
      
      
2. The liability of residents with any other form of tenure for recurrent charges ceases after 42 days from the day the resident permanently vacates their premises (unless the premises is resold prior to this time).
   
   

5. Settling-In Period

In a similar vein to the South Australian legislation, the Bill introduces a settling-in period that allows new village residents to terminate their residence contracts on the date that is the later of:

1. 90 days of the resident being entitled to occupy the premises; or
   
   
2. 90 days of the resident first occupying the premises; or
   
   
3. such other date as may be agreed between the operator and the resident.
   
   

Should a resident terminate within the settling-in period, the resident is liable to pay the operator only:

1. a fair market rent for the period (if any) of the resident's occupation;
   
   
2. the cost of any repairs due to damage caused in excess of fair wear and tear to the premises;
   
   
3. a reasonable administration fee; and
   
   
4. any amount prescribed by the regulations.
   
   

All other amounts paid or payable by the resident in relation to occupation for this period (ie, ingoing contribution and recurrent charges) are to be refunded by the operator to the resident:

1. within 14 days of resale of the premises for registered interest holders; and
   
   
2. within 14 days of termination of the residence contract during the settling-in period for residents with all other types of tenure.
   
   

It is important to note that the administration fee must not exceed the amount prescribed by the regulations. The draft regulations have not yet been released so the cap (if any) placed on the administration fee is not yet known.

The Bill also prohibits any additional fee being charged by the operator to the resident under a residence contract for termination during the settling-in period.

The seven business day cooling off period under the Act still applies even with the introduction of a settling-in period.

6. Departure Fee – Unfair, Negative Financial Impact

The Bill gives an outgoing resident the right to apply to the Tribunal for a recalculation of the payments the operator must pay to them under their residence contract (including departure fee) if, amongst other things, the resident considers the operator's conduct has unfairly had a negative financial impact on the resident.

According to the Bill, circumstances that could give rise to a recalculation by the Tribunal include the operator entering into a residence contract with a new resident for the premises on terms that:

1. are substantially different from those contained in the residence contract to which the outgoing resident was a party; and
   
   
2. will have a negative financial impact on the outgoing resident to the benefit of the operator.
   
   

The right of residents to challenge these payments potentially poses a significant problem for operators in the industry, particularly for those operators that periodically alter the departure fee and capital gain sharing structures for a village.

7. Costs Of Sale

For registered interest holders under the Act, the costs of sale incurred in reselling the premises are to be shared between the outgoing resident and the operator in the same proportion as the parties are to share in any capital gain. The Bill does not seek to change this position.

However, the Bill now regulates what constitutes 'costs of sale' in the regulations. The Bill provides that the regulations will prescribe what may be included (and more importantly for operators, what is excluded) from the costs of sale that are recoverable from registered interest holders.

As previously noted, the regulations are not yet available so the revised definition of costs of sale is not yet available.

8. Ingoing Contribution Payable By Instalments

The Bill permits a residence contract to provide for payment of an ingoing contribution by instalments at intervals specified in the contract and also for interest to be payable by the resident on the unpaid portion of the ingoing contribution calculated at the rate set out by the regulations.

In the absence of any statutory exemption, we query whether the form of contract required and period over which the ingoing contribution is payable will need to comply with the provisions of the Consumer Credit Code.

9. Statutory Charge Over Village Land

The Bill affords further protection to those residents who are not classed as registered interest holders by imposing a statutory charge over village land securing payment of the residents' refund under their residence contracts.

The imposition of the charge does not affect the transfer of village land as part of the sale of a village as a going concern by the operator to any third party.

10. Annual Accounts

The Bill provides that an operator must carry forward any surplus in the annual accounts of the village unless the residents approve otherwise.

The Bill also provides that an operator:

1. must make good any deficit in the accounts of the village;
   
   
2. is not permitted to carry forward any such deficit; and
   
   
3. is not permitted to seek a special levy from the residents to make good any such deficit,
   
   

unless the regulations provide otherwise.

11. Disclosure Requirements

General Inquiry Document

The Bill introduces an additional requirement that the operator provide a resident (or a person acting on their behalf) with an inquiry document no later than 14 days after the operator becomes aware that the person is a prospective resident.

The general inquiry document provides a basic explanation of the premises, services and facilities available in the village and must be in the form and contain the information required by the regulations.

Disclosure Statement

The provision of a general inquiry document to a prospective resident does not relieve the operator of its existing 14 day requirement to also provide a disclosure statement to a prospective resident once requested by a resident or once a resident expresses interest in specific village premises remains in the Act.

The disclosure statement must contain details of the particular premises together with the fees and charges payable by the resident.

Conclusion

It is likely that the Bill will be enacted with minimal changes. Operators should start revisiting their village documentation to address the changes.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.