Australia: Consultation Draft Reforms To Retirement Villages Act NSW Announced

Last Updated: 5 December 2006

On 23 November 2006, the Minister for Fair Trading tabled a consultation draft bill to amend the Retirement Villages Act NSW (the Act).

The amendments implement many, but not all, of the 50 recommendations made by the Office of Fair Trading in March 2005. There are a number of amendments that do not reflect the original recommendations and, if implemented as set out in this draft, will cause concern to some operators, especially for 'non owner' villages. These concerns are addressed below.

The reforms affect all contracts and to that extent act retrospectively. What the reforms show is that legislation in this area can change over time and that operators who merely repeat the provisions of the current Act (eg. in relation to capital replacement), may find themselves contractually locked out from using the flexibility presented by these and subsequent reforms. When considering these and subsequent reforms, operators should consider the importance of preparing a contract that achieves their commercial objective rather than simply repeating what is stated in the Act.

Set out below are summaries of the reforms and a brief commentary on each. Operators should review their contracts to determine if they require amendment in light of the proposed amendments.

'Owner' Replaced

The concept of 'owner' is replaced with the term 'registered interest holder'. There is in fact no real change in the concept, as a 'registered interest holder' includes a person who holds a long-term lease (more than 50 years), is registered on the title and includes a provision that entitles the person to at least 50% of any capital gains in respect of premises. The difficulty of this definition is that the recent decision in Hayes v Fernbank Developments Pty Ltd (Retirement Villages) [2006] NSW CTTT 394 (25 July 2006) means the category of non registered interest holders may be more extensive than operators thought and there is still no definition of 'capital gains' in the Act.

New Form Of 'Inquiry Document

There is a new 'general inquiry' document that is to be issued before a more comprehensive disclosure statement. The general inquiry document is to give a basic explanation of the village, including the services and facilities. The disclosure statement is to be more specific.

The general information document currently provided to residents is to be replaced with a statement setting out their rights and responsibilities of residents. Operators may recall the checklist that existed under the previous Code of Practice.

Budgets Not SOPEs

The concept of Statements of Proposed Expenditure (SOPEs) and Statements of Approved Expenditure (SOAEs) is to be replaced with 'proposed annual budgets' and 'approved annual budgets', respectively. Though the language is friendlier, the concept is in fact troubling as ordinary meanings of a 'budget' can be either 'a forward estimate of expenditure/revenue that is subject to change' or 'a specific limit on the amount of funds available'. Operators prefer the former, residents the latter.

Cooling-Off Periods And Refunds To Prospective Residents.

A resident entitled to a refund of an ongoing contribution because of an operator's failure to provide a proper contract, may apply to the Consumer, Trader and Tenancy Tribunal (CTTT) for an order compelling payment of the refund with interest.

The cooling-off period has been extended to 90 days. To the extent a resident departs during this period, the operator will be entitled to fair rent, the cost of repairs beyond fair wear and tear and an administration fee. Operators may consider incorporating agreed rates in relation to these matters into their contracts to avoid arguments in the future. The provisions also incorporate time limits for refunds and limitations on departure fees.

Register Of Villages

The reforms introduce a new regime for creating a register of retirement villages. Much of the detail of the information to be included in the register is left for the Regulations. The register will apply to new villages as well as established villages. Any land that was used as a retirement village 'immediately before the commencement of this section' must be notified and registered within three months of the section taking effect. The reforms do not deal with the form to be used or information to be provided though it is likely to reflect the location plans that are currently prepared for new leasehold villages.

Changes To Village Premises

Changes to a village unit by a resident must be done with the operator's written consent and subject to the operator's conditions. Presumably, operators will need to incorporate this obligation and their conditions into their contract if it is not already there. The object is to return premises to the condition they were in previously.

Overcoming Woolcott Court

It is clear that the Government was greatly affected by what happened at Woolcott Court. There are a number of reforms that address the issue and will affect all operators.

In relation to administrators, it is proposed that administrators appointed by the Director General will be entitled to be paid from recurrent charges or other moneys otherwise payable to the operator. Interestingly, it specifically excludes any liability on the Department for any costs of the administrator so appointed.

The provisions go further and give specific powers to the administrator to change village services, budgets and the ability to terminate the village contracts if no suitable operator is found.

To further combat the problems of Woolcott, the Act allows the Department to issue notices, warning people of risks involved in dealing with certain operators. The notices may relate to the risks involved in dealing with a person who has a recent history of 'unconscionable conduct' in dealing with consumers. This is an extremely dangerous and powerful tool. The safeguards for operators in this case are fairly limited.

Capital Maintenance And Replacement

These provisions have had an extensive overhaul and have brought some balance in favour of the operator. In essence, the obligation to pay for maintenance and replacement remains with the operator but the cost of capital replacement and maintenance may be paid from a new fund called a 'capital works fund'. This is a separate fund (similar in effect to the current capital maintenance fund) funded from recurrent charges according to the approved budget. The work can also be funded from other income sources held by an operator.

Residents and operators will be able share the cost of capital for items within units on the same proportion as they share capital gains however this will depend on the terms of the village contract. To the extent contracts do not allow for such sharing of expenses or passing of expense to residents at all, the provisions may not be of much help.

Interestingly, there is a specific prohibition on the selling of capital items to residents except as permitted under the Regulations. This is designed to stop the practice that had developed in the industry of making residents 'owners' of capital items in their units. Operators who have contracts with such provisions will lose their right to sell these items of capital to new residents.

Recurrent Charges And Deficits

Recurrent charges, varied other than by fixed formula, can be increased by the rate of CPI without requiring resident consent. Again, a village contract should incorporate such a mechanism. If the increase is beyond CPI, 60 days notice and the current regime will in effect apply.

There will be provision for residents to opt out of the need to agree to an annual budget and leave it merely to the operator to expend the funds. Other refinements to the annual budget process include:

  • deeming the approval of a budget where recurrent charges increase by a fixed formula or by CPI
  • allowing variations to line items in the approved budget without further consent
  • removing the obligation to provide audited accounts in certain circumstances relating to size of villages or if the residents resolve
  • removing the obligation for audited accounts for villages of certain sizes, namely recurrent charges of less than $50,000 or if the residents resolve
  • allowing a component for 'contingencies' within an annual budget. However, such an item will depend upon the terms of the village contract.

The right of operators to recover budget shortfalls has been removed completely. This means operators will need to be more vigilant in relation to their costs during the year. The ability to make provisions for budget shortfalls that existed at the time of these reforms is extended until 2011, that is, operators have five years to make up the shortfall through negotiation with residents or orders of the CTTT.

In relation to the obligation to pay recurrent charges for general services, the reforms propose that both non-owners and registered interest holders remain liable for such charges for 42 days (down from six months) and thereafter, registered interest holders are liable for such charges in the same proportions they share capital gains.

Statutory Charge On Village Land

The reforms include the introduction of a statutory charge over village land to protect outgoing residents. The provisions relate only to 'non-owner' type villages.

The statutory charge secures an entitlement to a refund under a contract relating to those premises. The charge is enforceable only by the resident and only if the operator has become insolvent or an administrator has been appointed and in the opinion of the resident, the operator is unlikely to be able to pay a refund. Obviously if an operator is insolvent, this last criteria will always be met.

The more disturbing aspect of this provision is that the land owner is not allowed to dispose of the land to which the charge 'is in force' unless the operator obtains a court order. The provisions do not however permit the land holder to make any application to the court. This appears to be a drafting error that should be corrected before the final bill is presented.

This means owners of 'non-owner' villages, such as loan/licence or other non registered interest holders, cannot sell their land without a court order, which they are not entitled to seek from the court. The provisions have been drawn from other jurisdictions but go further and in going further, cause real difficulties for village owners. These provisions become more troublesome when one considers the impact of the Hayes case that may classify lease residents 'non owners' even though operators thought they were 'owners' at the time.

Control On Deferred Management Fees And Refunds To Residents

In the first step to overcome the sometimes difficult formulas and marketing controls inserted into village contracts, the reforms introduce the right of registered and non-registered interest holders to approach the CTTT for a recalculation of a payment made to the former occupant following their departure if the resident considers:

'the conduct of the operator has unfairly had a negative financial impact on the former occupant'.

This means residents could potentially claim a loss because of an operator's manner of marketing based on the resident's perceived loss.

Other Reforms

Other reforms include:

  • introducing a penalty provision for amending a village contract without a solicitor's certificate
  • ensuring there is vehicular access for emergency and care services with penalties attaching for any failures
  • limitations on residents remaining members of resident committees for more than three years. This raises an interesting question as to who can enforce such a provision
  • an obligation on operators to hold annual general resident meetings with further directions as to what is to occur at those meetings including questions to the operator
  • limitations on proxies for residents.


This is merely a summary and only seeks to highlight the nature of the reforms. The effect of the reforms on individual contracts will vary across villages. What is clear is that the Government will not tolerate circumstances such as Woolcott Court in the future and will act swiftly and in acting swiftly has armed itself with other powerful weapons. What is also clear is that operators must appreciate laws in this area can change sometimes in favour of operators and that their contracts must be drafted in a sufficiently flexible manner to take advantage of change.

Unfortunately, there were other reforms and recommendations proposed, such as accreditation regimes, that were not incorporated. It is these types of reforms that improve the quality of operators that will in fact raise the standard of the industry.
By Arthur Koumoukelis



Arthur Koumoukelis

t (02) 9931 4873


Matthew Mallos

t (02) 9931 4898


David Deutsch

t (02) 9931 4817




Andrew Denehy

t (03) 9612 8217


Malcolm Watson

t (03) 9612 8218


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.

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