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Supporting transition to aged care
The Inquiry that led to these changes
Changes in early 2021
New retirement village laws started in 2021. They include:
- enabling residents to receive exit entitlement money before their unit sells (if the sale has been ‘unreasonably delayed’)
- providing an option for residents to fund their move into aged care by accessing part of their estimated exit entitlement money
- ensuring residents no longer have to pay ongoing charges for general services 42 days after they leave the retirement village (commences on 1 July 2021 onwards).
The new laws:
- apply only to registered interest holders with a long-term registered lease that gives them at least 50% of any capital gain.
- not apply to:
- unregistered interest holders
- registered interest holders who own a lot in a strata or community scheme village or own shares in a company title or trust village that gives them their resident right.
A resident can check their retirement village contract to confirm which arrangement they have.
The following information outlines the key changes under the Retirement Villages Amendment Act 2020. This information will be updated in early 2021 when the supporting Regulations are completed.
Resident right to access exit entitlement money
An exit entitlement is paid to an outgoing resident when they permanently leave a retirement village.
Permanent vacation includes the removal of all possessions from the property and handing back the keys to the operator. The amount paid depends on the terms of each resident’s contract.
From 1 January 2021, a resident will gain the right to apply for an order to receive their calculated exit entitlement, if their unit remains unsold after:
- 6 months in the metropolitan area (local government areas are listed in the Regulation), or
- 12 months in other areas.
The time for the prescribed period starts 40 days after (whichever occurs first):
- the date the property is first advertised for sale
- the date the resident permanently vacates the property, including returning all keys to the property to the operator
- if the resident doesn't intend to move out of the property while it is for sale, the date the resident gives written notice to the operator of their intention to stay in the property while it is for sale.
Note: the prescribed period doesn’t apply to a former resident who has been paid part of their exit entitlement by way of accommodation payments for aged care, provided their premises have not sold within 2 years after the resident has first entered the aged care facility.
This means the first residents will be able to apply for such orders from 1 August 2021. This takes into account the 6 month period the property has remained unsold (if in a metropolitan area) and the 40 days period as noted above. This right also applies to former residents who have had their property for sale before 1 January 2021.
A resident may apply for an exit entitlement order only if the agreed valuation for the exit entitlement was calculated at least 30 days before making the application.
To calculate the exit entitlement, the estimated sale price for the property and any capital gain must be worked out by:
- an independent property valuer, or
- the outgoing resident and operator agreeing to its value.
If a resident makes an application to the Secretary for an order, the village operator must satisfy the Secretary that they have not ‘unreasonably delayed’ the sale of the property:
- If the operator can’t, the Secretary will issue an order to the operator to pay the resident their exit entitlement money.
- If the operator satisfies the Secretary that they have not unreasonably delayed the sale, then the Secretary will not issue an order and will notify both parties of this decision as soon as possible.
The operator can apply to the Secretary for an order to extend the 6 or 12 month period with respect to a property. To gain the extension of time, the operator must satisfy the Secretary that they have not unreasonably delayed the sale of the property (during the time period reviewed).
Timeframe for paying an exit entitlement if a property sells
Registered interest holders must be paid their exit entitlement after their property sells. These existing requirements will still apply if a property actually sells. This is already a requirement under existing retirement village laws. For whichever happens first, the operator must make the exit entitlement payment within 14 days after the date they:
- enter into a village contract with a new incoming resident to the property
- receive full payment under a contract from a new incoming resident to the property
- enter into a residential tenancy agreement with a new incoming tenant to the property, or
- allow someone to start living in the property.
Supporting the transition to aged care
More than 60 per cent of village residents move directly into aged care. Previously, this move could be delayed if residents didn’t have the money available to cover the costs of moving.
From 1 January 2021, if a village resident needs to move to an aged care facility, they can request the village operator to pay. The Operator will pay the resident’s nominated aged care provider the Daily Accommodation Payment (DAP). Operators must pay up to 85 per cent of the prescribed component of the resident’s calculated exit entitlement (not including any capital gain) as the DAP.
Operators will be able to apply to the Tribunal to:
- extend the time for paying the accommodation payment, or
- not pay the accommodation payment to an aged care facility.
The Tribunal may make an order only if satisfied that making an accommodation payment would impose a significant financial burden on the operator. The Tribunal will consider the outgoing resident and operator’s views and circumstances to make its decision.
Residents in an aged care facility having their accommodation payments paid by the operator as a DAP, can also request an exit entitlement order after 2 years from the date of entering the facility, if their premises has not sold.
Residents entering an aged care facility before 1 January 2021:
- cannot request the accommodation payments; but
- may still apply for early exit entitlement payments at the relevant 6 or 12-month timeframe after the 1 January 2021 start date, if their unit is not sold.
42-day cap on recurrent charges for general services
Village operators will only be able to charge residents for up to 42 days for general services (gardening, administration, cleaning, etc.) once they have permanently left the property. This will apply to residents on or after 1 July 2021, when their village’s financial year commences.
This new provision only applies to residents whose contract is in the form of a long-term registered lease that entitles them to at least 50 per cent of any capital gain.
Unregistered interest holders still have access to their 42-day cap. The new 42-day cap provision does not apply to residents who own a lot in strata, or community villages or own shares in company title villages that give them a residence right. An exemption from the 42-day cap requirements will apply for trust villages where the trust is owned and run for the benefit of residents.
Between 1 January 2021 and 1 July 2021 only, a current resident who has moved out, can ask the operator to deduct these charges from their exit entitlement. The operator must action these payment, within 14 days after the request is made. This provision will apply to residents in a village when their financial year commences on or after 1 July 2021.
A limit will be applied to increases in recurrent charges to fund general services, to make up the shortfall when former occupants cease paying for their general services at the 42 day mark. Limits will ensure that any increases will only occur as part of an approved budget for the next financial year after the former occupant’s liability has ceased. The operator will be limited to take into account those units that have become vacant since 1 January 2021, only. Going forward, operators will only be able to take into account vacancies from the previous financial year.
For example, in a 100 unit village, 10 became vacant in 2019/20 and 10 (all after January 2021) in 2020/21. In the 2021/22 FY budget the operator can set their budget based off 80 occupied units + 10 vacant units from 2020/21 FY as only 10 have become vacant in the previous financial year.
Changes started in early 2021
Asset management plans
The asset management plans amendments to the Retirement Villages Act 1999 commenced on 1 January 2021. The asset management plans amendments to the Retirement Villages Regulation 2017 commenced in February 2021.
Operators must maintain an asset management plan for each village they manage or operate and make the plan available to current and prospective residents.
An asset management plan is a 10-year plan, documenting the costs of purchase, and ongoing maintenance, repairs and replacement of a retirement village’s major items of capital, including shared major items of capital and who will pay for them.
The information in the asset management plan must 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 major items major of capital.
The plan must include the following components:
- an asset register of the village’s major items of capital, including information about the effective life of items of capital, and
- a maintenance schedule of the village’s major items of capital, including information about capital replacement.
The Government has introduced amendments to the Regulation to clarify some of the recording requirements for the asset register and maintenance schedule:
- operators can group of items of capital that are similar, with a purchase price of $1,000 or more, have the same effective life and were bought in the same financial year,
- make clear that the asset register is to be used for the maintenance schedule,
- if the information that identifies an item (brand model number and serial number) is not available, you will not be penalised for not recording this information in the asset register
- removed the requirement to record the following information:
- an estimate of the costs of the proposed capital replacement, and
- if the building is under construction, an estimate of the costs of construction
- definitions of buildings and structures are now better aligned with the Act* (please note that gardens are not captured under the definition of an item of capital)
- operators should calculate effective life referencing this ruling TR 2020/3 - Income tax: effective life of depreciating assets.
Operators must also:
- prepare a 3-year report for capital maintenance extracted from the asset management plan to inform expenditure for major items of capital in the annual budget
- make the report available to residents and prospective residents, even when you do not need consent from the residents through the budget process
- include your proposals to replace or continue to maintain items of capital that are within one year of the end of their effective life or with an accumulated costs of repairs greater than 90% of the purchase price at the time the 3-year report is prepared.
Operators must make the most up to date version of the asset management plan available at your village or at a place of business in New South Wales, for inspection by residents and prospective residents or a person acting on their behalf.
To allow more time for operators to prepare an asset management plan the obligation commences after 1 July 2021. It will depend on what financial year (FY) you are operating under as to when you must prepare your first asset management plan. For those villages working on an Australian FY, an asset management plan will need to be prepared for the 2022/23 FY. For those with a FY commencing after 1 July 2021, a plan will need to be prepared.
To fully comply with this requirement, the penalty provisions for non-compliance will not commence until 1 July 2022.
Independent assessment of asset management plans
The Government has introduced a requirement for an independent assessment to be done on the draft asset management plan you prepare:
- the assessment must be prepared by an independent quantity surveyor or the auditor of the village whose appointment was consented by the residents,
- it must confirm that your plan meets the requirement of the Regulation and be annexed to the proposed plan for residents’ comment,
- if you have already commenced preparation of an asset management plan on or before 29 August 2021 you are not required to obtain an independent assessment to the proposed plan to provide to residents until the following financial year.
Changes already implemented
Following consultation, the government previously implemented the following reforms.
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. This is based on the terms and conditions of the resident’s contract. This tailored information will help residents better understand what’s involved when leaving 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.
For registered interest holders, who receive 50 percent or more of the capital gain, the following information must be provided:
- a summary of general requirements under the Act, Regulations and the village contract regarding terminating the contract (necessary for sale);
- the estimated departure fee (if any) payable by the resident;
- residents liability to pay recurrent charges for 42-days after permanent vacation;
- estimates of any amounts payable by the resident in relation to the sale of the residential premises;
- the estimated sale price for the residential premises;
- the estimated amount payable by the operator to the resident following the sale of the residential premises;
- a summary of processes and estimates for residents for aged care daily accommodation payments (section 182AG);
- a summary of processes and estimates for those who are entitled to early access to exit entitlements (section 182AC); and
- estimates of any other amounts the resident would pay under their contract (including any capital gain shared with the operator).
Operators should also consider providing residents with information regarding the engagement of an external selling agent and whether this is likely to result in any additional costs.
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. They must ensure that residents and staff are familiar with the plan.
The emergency plan should be easy to understand and tailored to the village. It must be 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 can safely evacuate, if they need to.
While operators can't force residents to participate in annual evacuation exercises, they should actively promote participation. The greater the participation, the more prepared the village will be in an emergency.
Operators must also 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 must 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.
To learn more, refer to the Emergency plans and evacuation exercises guideline.
Appointing an auditor
Operators must obtain residents’ consent each year before appointing an 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 the operator suggests, they may put forward an alternative. This gives residents 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 put forward by the residents, the operator will need to apply to the Tribunal for an order. The Tribunal cannot make an order in the operator’s favour, unless it considers there are exceptional circumstances for doing so.
You can find out more in the Annual auditing of accounts guideline.
Rules of conduct
On 1 July 2019 , rules of conduct came into effect under the Retirement Villages Amendment (Rules of Conduct) Regulation 2018.
The rules of conduct prescribe mandatory minimum standards for operators, which concern their:
- knowledge of legislation
- conduct when dealing with prospective and current residents
- honesty and ethics when marketing retirement villages
- ways to solve disputes and handle complaints within their village
- reporting and management of conflicts of interest
- training and skills (including that of their staff)
- interactions with external selling agents when selling a residence.
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).
Find out more about retirement village disputes.
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 to arise).
Kathryn Greiner AO was appointed as the NSW Government’s inaugural Retirement Village Ambassador. She travelled the state talking to residents and prospective residents about their rights and retirement village living.
Since the launch of the program in December 2018, the Retirement Village Ambassador presented to more than 4,600 residents of retirement villages and prospective residents. This included a series of public forums held around the state, which helped raise awareness about changes to retirement village laws.
Due to COVID-19, the Retirement Village Ambassador Program has been placed on hold for 2021.
For more details, read the Retirement Village Ambassador program Terms of Reference (PDF, 199.6 KB) and the 2019 Annual Report (PDF, 1515.43 KB).