Retirement village residents and their families will be better protected under new legislation that passed Parliament in November 2018.
Proposed new changes
The NSW Government is developing amendments to the Retirement Villages Act 1999 to:
Improve access to exit entitlements and support residents moving to aged care
Exit entitlements are the payments transferred to outgoing residents when they permanently leave a retirement village. The specific amounts paid to a resident depends on the terms of their individual contract.
Registered interest holders must be paid their exit entitlements following the sale of the premises within 14 days after one of the following events occurs:
- the date on which the operator receives full payment under a residence contract with an incoming resident of the premises
- the operator enters into a village contract with an incoming resident of the premises
- the operator enters into a residential tenancy agreement with an incoming tenant of the premises
- a person takes up residence in the premises with the consent of the operator
Under the proposed amendments, if a unit remains unsold after 6 months in the metropolitan area, or 12 months in other areas, a resident will gain the right to apply for an order for the village operator to pay them their calculated exit entitlement. In determining whether to make an order the Secretary would consider whether or not the operator has “unreasonably delayed the sale” of the property.
The amount of any capital gain would be determined either by the parties agreeing to a value for the property, or the value being determined by an independent property valuer. If there’s a dispute, mediation can occur and the parties can also access the Tribunal for a final decision.
Village operators will also be able to seek an order to extend the 6 or 12 month timeframe, if the unit has not been sold and the operator has not unreasonably delayed the sale.
The Aged Care Rule
More than 60 per cent of village residents transition directly into aged care, and often do not have the funds available in order to cover the costs of this move.
If a village resident requires an immediate move to an aged care facility, amendments will require the village operator to pay the calculated exit entitlement to the nominated aged care provider as the Daily Accommodation Payment (the DAPS).
The Operator may be able to require a resident to provide evidence that they are not able to fund their move from available income and assets by viewing the resident’s financial assessment they need to have done under the Aged Care Act 1997 of the Commonwealth.
Operators will be required to pay up to 85 per cent of the calculated exit entitlement as the DAPS. This will cover circumstances where a property may have been over-valued.
The value of a property for the purposes of determining any capital gain to be paid as part of the exit entitlement, will be determined either by agreement between the parties, or by use of an independent property valuer appointed by the parties.
Place a 42-day cap on the payment of recurrent charges for general services
Currently, registered and non-registered interest holders are required to pay recurrent charges for general services (gardening, administration, cleaning, etc) for 42 days after they vacate their premises.
After that, registered interest holders are still required to pay a share (equal to their potential share of the capital gain as per their village contract) of recurrent charges for general services.
Under the proposed amendments, village operators will only be able to charge residents for a maximum period of 42 days for general services once they have exited the village.
These proposed changes are designed to allow residents to be able to more fluidly and fairly leave a village, improving their financial security.
This change would apply to all current and future residents but would be subject to a transitional period to allow village operators to adjust their budgets.
Maintain asset management plans
Operators will have to maintain an asset management plan for the village’s capital items and make the plan available to current and prospective residents.
The information in the asset management plan will need to include:
- costs associated with both 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.
Fair Trading will carry out consultation on the draft Bill later this year.
All submissions will be considered before finalising the Bill.
Changes already implemented
The government carried out consultation and then implemented changes to:
Annual contract ‘check-up’ meetings
Residents have the right to meet with their village operator once a year to discuss their contract and get a better understanding of the process involved when leaving the village, including any fees and charges payable.
Family, friends or advisors may attend the meeting with the resident to give them support or assistance. Residents may also nominate one or more people to represent them at the meeting if they cannot attend.
At the meeting, operators need to provide a verbal and written summary of all costs incurred if the resident were to leave the village, based on the terms and conditions of the resident’s contract. This tailored information will help residents better understand what’s involved when exiting the village and allow any concerns or questions to be addressed.
The following information must be provided at the meeting:
- a resident’s rights and obligations in relation to leaving the village
- estimated departure fee (if applicable)
- estimated fees and charges involved with selling the unit
- estimated sale price or estimated ingoing contribution of the next resident, as applicable to the resident’s contract
- estimates of any other fees or charges that apply when leaving the village (including an estimate of any capital gain shared with the operator)
- how long recurrent charges may be payable after leaving the village
- estimate of the final monies a resident would receive upon leaving the village, after they have paid all fees and charges.
Any cost and other estimates provided by the operator at the meeting must be reasonable. They must take into consideration factors that may influence the estimate, such as the features and characteristics of the resident’s unit. A reasonable estimate will ultimately depend on the circumstances of each resident.
Significant penalties can apply for operators who provide unreasonable estimates.
Further information can be found in the village contract information meetings guideline.
Emergency plans, evacuation exercises and safety information
Operators are required to prepare and maintain an emergency plan for their village and make sure that residents and staff are familiar with the plan.
The emergency plan should be easy to understand and tailored to the village. It must tailored to the factors that may affect the response to an emergency in the village, including:
- the size, location and layout of the village
- the number of residents in the village
- the needs of residents with mobility, hearing, visual or other impairments.
The operator must review their emergency plan at least every 12 months.
At least once a year, operators must carry out an evacuation exercise. They are responsible for making sure that all residents are familiar with emergency protocols and are able to safely evacuate if they need to.
While operators can't force residents to participate in annual evacuation exercises, they should seek to actively promote participation. The greater the participation, the more prepared the village will be in an emergency.
Operators will also have to display key safety information in communal areas within the retirement village, including:
- a map showing the location of assembly areas, exits, fire extinguishers and any other emergency equipment
- instructions on how to evacuate in the event of a fire or other emergency
Operators will also have to provide this information to each resident, tailored to their specific unit in the village.
These obligations respond to the concerns of many residents raised during the Inquiry.
Further information can be found in the emergency plans and evacuation exercises guideline.
Appointing an auditor
Operators must obtain residents’ consent each year before appointing a person as the auditor of the accounts of the retirement village.
For most villages, approval of the auditor will be sought at the same time as the village budget.
Where residents do not agree with the auditor suggested by the operator, they may suggest an alternative.
This will help to ensure residents have a say in who examines how the operator is using the money that residents pay as recurrent charges.
Where the operator does not agree with the alternative auditor suggested by the residents, the operator will need to apply to the Tribunal for an order.
However, the Tribunal cannot make an order in the operator’s favour unless it considers there are exceptional circumstances for doing so.
Further information can be found in the annual auditing of accounts guideline.
Rules of conduct
The Amendment Act established powers to prescribe mandatory rules of conduct for operators of retirement villages. On 1 July, rules of conduct came into effect under the Retirement Villages Amendment (Rules of Conduct) Regulation 2018.
The rules of conduct establish a benchmark for the conduct and behaviour of operators. They aim to improve accountability and provide greater peace of mind for residents when it comes to the behaviour and conduct they can expect from operators.
The rules prescribe mandatory minimum standards for:
- knowledge of relevant legislation
- conduct when dealing with both prospective and current residents
- honest and ethical practices when marketing retirement villages
- ways to solve disputes and handle complaints within villages
- reporting and management of conflicts of interest
- the training and skills of operators and their staff
- interactions with external selling agents when selling a residence.
The offence provisions within the Rules will commence on 1 January 2020.
The rules of conduct are enforceable and significant penalties may apply if operators fail to comply.
Free on-site mediation
The reforms provide new regulatory powers relating to mediating retirement village disputes. This includes the power to prescribe circumstances where mediation will be a mandatory step before progressing to the NSW Civil and Administrative Tribunal (NCAT).
The inquiry that led to these changes
As part of its four-point plan to improve retirement village living, the NSW Government commissioned Kathryn Greiner AO to lead an inquiry into the state’s retirement village sector. It was completed between August and December 2017.
This Inquiry found that the operation of the retirement village sector could be improved in three key areas:
- increasing transparency of exit fees and contracts
- clarifying the funding arrangements for ongoing maintenance costs which are shared between residents and operators
- providing more support when disputes arise (and reducing the potential for disputes arise).
Kathryn Greiner was appointed as the NSW Government’s Retirement Village Ambassador. She travels the state talking to residents and prospective residents about their rights and retirement village living. See our Retirement Village Ambassador page for more information.