On 14 August 2006, the New South Wales Minister for Fair Trading, Diane Beamer, announced, by media release, the likely changes to be made to the NSW Retirement Villages Act (the Act). All of the reforms have implications for operators and financiers and are described as providing greater certainty to residents while reducing red tape for operators. It is said that the reforms will be introduced by the end of 2006.
Without seeing the details of the reforms it is hard to say if the objective will be achieved. At first blush, it is likely the reforms will increase the administration and complexity of the Act and pass the burden of reform to operators and financiers.
The announced reforms include:
ensuring residents are treated as ‘secured creditors’ if an operator becomes insolvent
ensuring capital works and maintenance are the operators' responsibility outside resident premises but allowing shared costs as agreed with residents
allowing existing shortfalls in budgets to be repaid over 5 years, however making any future shortfalls the responsibility of operators
extending the cooling-off period to 90 days
establishment of industry standards
restrictions of fees against residents upon leaving their premises
increased disclosure obligations.
For operators, the reforms mean management and financial discipline, reputation issues and controls on expenditure will become critical. Any increase in the regulatory and administrative burden on operators is likely to lead to increased costs. However, in respect of the maintenance of villages, the reform does provide an opportunity for operators to share the burden with residents. This will depend upon the form of an operator’s resident agreement.
Financiers will need to consider the consequences of the change in security interests of residents in any assessment of a village or development. Other states use similar concepts and they dramatically affect a secured creditor's position. Similarly, the extended cooling-off period greatly affects the notion of ‘pre sale’ commitments.
Insolvency practitioners will need to understand the effects of the reforms in the event of being appointed to a village. Recent cases, such as Peridon in which gadens lawyers acted for the liquidators, have highlighted the difficulties of reconciling the Act with common insolvency concepts.
Both financiers and operators will be affected by the cashflow implications of funding future shortfalls, loss of fees from departed residents and more stringent controls on expenditure.
In any view, any reform that reduces red tape on operators and provides greater security for residents is to be welcomed. by Arthur Koumoukelis
t (02) 9931 4873
t (02) 9931 4817
t (03) 9612 8218
t (03) 9612 8217
This publication is provided to clients and correspondents for their information on a complimentary basis. It represents a brief summary of the law applicable as at the date of publication and should not be relied on as a definitive or complete statement of the relevant laws.
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