Australia: Exposure Draft of the ACT Retirement Villages Bill 2010

On 5 May 2010, Labor MP Mary Porter tabled an exposure draft of the proposed Retirement Villages Bill 2010 for the Australian Capital Territory.

The Bill is open for consultation until 22 September 2010, after which time a revised version of the Bill is intended to be tabled - sometime after the February 2011 parliamentary sittings.

The Bill heavily borrows from the language and concepts of other jurisdictions especially Queensland. However, Queensland's retirement village industry is significantly more mature and larger than the ACT's. There are more than 250 registered retirement village schemes in Queensland as compared to the ACT's 28 retirement villages, and it must be asked whether such a comprehensive regime, which suits an industry the size of Queensland's, is suitable for the much smaller ACT.

The Bill seeks to introduce a 'one size fits all' approach, which in the circumstances could be said to give rise to an unnecessary, excessive, even stifling, 'over regulation' of the industry in the ACT.

Some key proposals in the Bill which can be criticised as being 'over regulation' are:

• forcing operators to 'buy back' residents' premises within 30 days of the resident leaving
• the requirement for a Public Information Document as prescribed
• the extension of the 'cooling off' period to 21 days
• requiring the operator to share liability for recurrent charges for general services with a former resident 90 days after they vacate
• limiting increases in recurrent charges for general services to changes in the Consumer Price Index unless residents have passed a special resolution for a larger increase
• the introduction of the statutory charge on all retirement village land in the ACT
• the introduction of detailed rules for the conduct of residents' committee meetings
• introducing a prescribed method for resolving retirement village disputes.

Any submissions from operators and other stakeholders on the proposed Bill are due by 22 September 2010. Any operators who would like a copy the proposed Bill and Consultation Outline or who need assistance with preparing submissions to MP Mary Porter on the Bill, please contact us using the details above.

Forcing operators to 'buy back' premises within 30 days

Section 46 of the proposed Bill requires operators to 'buy back' residents' premises by refunding their ingoing contribution within 30 days. It applies where a resident terminates their residence contract by giving the operator one month's notice.

Forced 'buy backs' are not uncommon and exist in other jurisdictions. For example, in New South Wales, an operator must refund ingoing contributions paid by residents who are 'non registered interest holders' within six months. However, the 30 day 'buy back' requirements in section 46 of the proposed Bill are more onerous for operators and are unmatched in any other state or territory.

Such a requirement is likely to cause increased pressure on operators' cashflows. Financiers to the ACT retirement village industry are also likely to have difficulty working with such strict 'buy back' obligations.

The Pubic Information Document

The Bill says that operators must provide prospective residents with a Public Information Document (PID) which is borrowed directly from Queensland's PID. The content of the PID is prescribed in the Bill and the Bill adopts similar terms to those used in section 74 of the Retirement Villages Act 1999 (QLD).

When complete with all of the information an operator is required to incorporate in it, the PID will be close to 30 pages long and contain a large amount of generic and general information. Prospective residents are likely to be given this information numerous times if they make enquiries at more than one village. Anecdotal evidence in Queensland is that prospective residents are put off reading the whole PID when deciding whether to move into a particular retirement village.

A PID is said to be necessary in the ACT to address concerns that existing information about retirement villages provided by operators is 'excessive and difficult to understand'. One should question the usefulness of a document as large as the PID if the policy intention is to make information about retirement villages more accessible and understandable for prospective residents.

Extending the 'cooling off' period to 21 days

Under the Retirement Villages Industry Code of Practice (1999) prospective residents currently have a five business day 'cooling off' period.

Under the Bill, a 21 day 'cooling off' period is proposed from the date the residence contract is signed or, if the contract is contingent upon a later event, the date the later event occurs. More importantly, the operator is not entitled to receive the ingoing contribution until the end of the 21 day period. During this time, the resident may terminate their residence contract, without penalty and the operator must immediately refund to the resident any money they paid under their residence contract including their ingoing contribution. The 'cooling off' period is not ended by the resident moving into premises in the retirement village.

The 'cooling off' provisions in the Bill attempt to imitate the 'settling in period' which exists in other jurisdictions; however the Bill contains none of the protections for operators which other states have provided. The operator is not given any entitlement to rent while a resident occupies premises in their village and is not able to recover its costs or any other fees in relation to the resident's occupation of premises in the village. The requirements that the operators hold residents ingoing contributions in trust and immediately refund them if a resident terminates during the 'cooling off' period is likely to impact operator's cashflows.

Former resident and operator to share liability for recurrent charges

Operators will become liable for a proportion of recurrent charges for general services after 90 days from the date the resident vacates their premises if the premises are not re-leased or sold. The operator's liability will be in the same proportions in which it shares in capital gain with a resident. After nine months, the operator becomes solely responsible for paying recurrent charges in respect of a vacant unit irrespective of any capital gain share. This is a significant departure from other jurisdictions.

Under the Code, this issue has largely been left to be determined by the resident and the operator under the terms of their residence contract and the provisions of the Bill would override the terms of contracts operators have with existing residents.

The provisions in the Bill appear unnecessary given that operators and residents have been successfully working under the Code for sometime.

Increases in recurrent charges for general services limited to CPI

The Bill proposes to require operators to limit percentage increases in recurrent charges for general services to the change in the Consumer Price Index for Canberra. While residents will be able to approve an increase exceeding CPI, such approval requires a special resolution at a meeting of residents. This is unlike other jurisdictions where budgets are, in the main, passed by a majority vote.

While limiting increases in recurrent charges to CPI is clearly the approach preferred by residents, it fails to have regard to the actual cost increases faced by many operators from year to year, which in most cases exceed CPI.

The only expenditure to which the fixed increase regime will not apply are rates, taxes and levies charged by the Commonwealth or the ACT Government, increases in awards for salaries or wages of village staff, insurance and contributions to the long term maintenance fund or maintenance reserve fund. This mirrors other jurisdictions such as Queensland and New South Wales.

Statutory Charge over retirement village land

The Bill proposes that a statutory charge apply to land used for registered retirement village schemes. As all operators must register their villages as retirement village schemes prior to entering into a residence contract, the statutory charge is intended to apply to all villages in the ACT. This is similar to the statutory charge which applies to Queensland.

While the charge exists over all registered retirement village schemes, the security it provides appears to be limited to those residents who do not own or have a leasehold interest in their premises. The definition provided in the Bill as to which residents 'own' their premises lacks clarity and should be improved.

Religious and charitable organisations may apply to be exempt from the statutory charge, however this must be done prior to registration of a retirement village scheme.

Detailed rules for the conduct of residents' committee meetings

Under the Code, residents are largely free to determine their own procedures for the conduct of resident meetings. The Code requires only that an operator not restrict a resident from participating in a residents' committee.

This simple, streamlined approach to resident meetings is to be replaced under the Bill with an entirely new regime. The new rules detail how decisions at meetings of residents' committees

may be made, how votes are cast, how proxies are appointed by residents and the quorums required to transact business at residents' committee meetings.

Resolution of retirement village disputes

A detailed regime for resolving retirement village disputes is set out in the Bill. Importantly, it requires operators and residents to attempt to negotiate a resolution to the dispute prior to applying to the ACT Civil and Administrative Tribunal.

If the dispute cannot be resolved informally, the parties may apply to ACAT which will have powers to make a wide range of orders in relation to the dispute.

A process for resolving disputes informally through a Disputes Committee already exists under the Code. It is questionable whether the proposed provisions in the Bill will achieve a quicker resolution of disputes than the regime that exists under the Code.

One size does not fit all for the ACT

It is suggested that more work needs to be done before a revised version of the Bill is introduced to parliament in February 2011. Recently, discussions with parliamentary members have indicated that the introduction of a new bill may be deferred until late 2011, however operators should not rest on their laurels.

Operators and government must find a workable balance between the two key stated objects of the legislation, namely to provide protection for consumers in the retirement village industry and to encourage continued growth of the industry in the ACT.

Legislation in the form of the proposed Bill will operate contrary to the latter stated object and, as indicated in this article, arguably does so in an unnecessary and severely excessive way. It may have the unintended consequence of discouraging further development in the ACT.

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.