The Civil Proceedings Bill 2011 amends the Retirement Villages Act 1999 so that scheme operators may no longer calculate exit fees on a 'part of a year' basis. Exit fees will now be calculated on a daily pro-rata basis.
The Bill was passed by the Queensland Government earlier this month and has received assent. While the relevant sections are not yet law, they will become law when they commence on proclamation, which is expected next week.
Here, partner Tracey Rundle and senior associate Angie Coleman outline the amendments and explain how they will affect scheme operators, both going forward and retrospectively.
What you need to do now
- Scheme operators need to consider updating their residence contracts to reflect the amendments if their contracts do not already comply. However, the amendments will still apply to the contracts even if they are not amended.
- Going forward, if scheme operators chose not to amend their residence contracts, they will need to consider the implications of residents comparing contracts between villages. Residents may favour a contract that complies with the amendments over a contract that is either silent on this point or does not comply with the amendments, regardless how they operate.
- Before calculating exit fees for existing contracts, scheme operators should seek legal advice as to whether the amendments will apply retrospectively to those contracts.
A summary of the amendments to the Retirement Villages Act
A new section 53A has been added to the Retirement Villages Act, which requires exit fees to be calculated on a 'daily basis'. This means that the traditional practice of calculating exit fees based on the number of years of occupation of a resident (which includes any part of a year) used by some scheme operators will now be outlawed going forward, and for some contracts, retrospectively.
By way of example, if the residence contract states that the exit fee payable is five percent of the ingoing contribution payable under the contract after one year of residence in the unit, and six percent of the ingoing contribution payable under the contract after two years of residence in the unit, and the resident actually resides in the unit for one year and 14 days, the exit fee payable will be worked out on a daily basis as follows:
5% x the ingoing contribution (for the first year) + 6% x 14/365 (ie 14 days only at 6%) x the ingoing contribution (for the portion of the second year that the resident resided in the unit).
Many scheme operators would have previously calculated the exit fee in this scenario as follows:
5% x the ingoing contribution (for the first year) + 6% x the ingoing contribution (for whole of the second year, regardless of the fact that the resident only resided in the unit for 14 days of that year).
Which residence contracts are affected by the amendments?
The amendments will apply to all residence contracts (including contracts entered into before the amendments commence) unless the relevant residence contract:
- was entered into before the commencement of the amendments; and
- 'provided a way of working out the exit fee that is not on a daily basis'.
Unfortunately, this may mean that where a pre-commencement residence contract does not specifically provide for the exit fee to be calculated on a basis other than on a daily basis, the exit fee may have to be calculated on a daily basis. This means that the amendments will have retrospective application to these contracts.
The amendments do not provide details on 'providing a way of working out the exit fee that is not on a daily basis'. However, we assume that in order for the amendments to not apply to contracts entered into before commencement of the amendments, the contract would need to either expressly include a provision that excludes the calculation on a daily pro-rata basis or include examples in the calculation of the exit fee that specifically showed that the exit fee would not be calculated on a daily basis. In other words, the examples in the contract or public information document would need to show how the exit fee is calculated on some basis that is other than daily - for example, on a part of a year basis. However, the amendments are not clear on this point.
For more information about these amendments or calculating exit fees under the Retirement Villages Act 1999, please contact HopgoodGanim's Retirement Living team.
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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.
