Changes to retirement village laws

Retirement village residents and their families will be better protected under new legislation that passed Parliament in November 2018.

Proposed new changes

The government is currently carrying out consultation on:

Asset management plans

Operators will have to maintain an asset management plan for the village’s major items of capital. The plan will need to be made  available to current and prospective residents to increase transparency.

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
  • the expected lifespan and expected maintenance and replacement requirements of items of capital.

Exit entitlements

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.

Currently for registered interest holders, unless the contract provides for earlier payment, exit entitlements must be paid following the sale of the premises within 14 days after one of the following events occurs:

  • 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

The proposed changes will  provide former residents who are registered interest holders with certainty about when the operator is required to pay their exit entitlements. The requirement will include specific timeframes for when operators must pay a former resident.

  • Residents of villages in the Sydney Metropolitan Area would be provided with a maximum period of 6 months to await their entitlement.
  • Residents in regional areas would be provided with a 12 month maximum period

The reform requires that the Sydney Metropolitan Area be defined. While this is a commonly used term, NSW legislation generally identifies this area by using local government areas.

Recurrent charges cap

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 the 42 day period, 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 changes, 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.

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).

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 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.

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