Australia: What retirement village operators need to know about Australian consumer law & NSW reforms

Last Updated: 18 September 2017
Article by Alison Choy Flannigan

Background

The Australian Competition and Consumer Commission (ACCC) has recently announced that it will launch an investigation of the "more serious matters being raised" in the Aveo retirement village scandal.

ACCC Chairman Rod Sims said there also needs to be a wider review of the sector, which should involve the Australian Securities and Investment Commission (ASIC) and state regulators.

There are three main areas the ACCC will investigate: misleading conduct, unfair contract terms and unconscionable conduct.

We note that NSW Fair Trading has recently commenced auditing Retirement Village Operators. We recommend that all Retirement Village Operators review their Village Contracts to ensure that they comply with both retirement living laws and the Australian Consumer Law.

The Australian Consumer Law (ACL), is contained in Schedule 2 of the Competition and Consumer Act 2010 (Cth) and applies to consumer contracts including Village Contracts and also residential aged care and home care client agreements.

It is important to remember that if there is an inconsistency between the legislation and the contract, the legislation will prevail to the extent of the inconsistency.

Unfair Contract Terms

The ACL provides that a term of a consumer contract will be void if the term is unfair and the contract is a standard form contract.5

A consumer contract is a contract for the supply of goods or services or a sale or grant of an interest in land to an individual whose acquisition of the goods, services or interest is wholly or predominantly for personal, domestic or household use or consumption.

A consumer contract is a standard contract unless proven otherwise.6 A standard form contract is offered on a "take it or leave it" basis.

A term will be unfair if it:

  1. causes a significant imbalance in the parties' rights and obligations under the contract;
  2. is not reasonably necessary to protect the legitimate interests of the party advantaged by the term; and
  3. causes financial or other detriment to the resident if it were relied on.7

However, the following terms are exempt from the unfair contract provisions of the ACL:

  1. terms that set out the price;
  2. terms that define the product or services being supplied; and
  3. terms that are required or permitted by another law (such as terms limiting liability permitted by the ACL).8

An example of an unfair term under a Village Contract would be one that allows the Village Operator to unilaterally terminate or amend the contract or a one-sided harsh indemnity.9

Unconscionable Conduct

Village Operators must not engage in conduct that is unconscionable.10 Unconscionable conduct is generally understood to mean conduct which is so harsh that it goes against good conscience. Conduct may be unconscionable if it is particularly harsh or oppressive. To be considered unconscionable, the conduct must be more than simply unfair — it must be against conscience as judged against the norms of society.

Factors considered by the court include:

  1. the relative bargaining strength of the parties;
  2. whether any conditions were imposed on the weaker party that were not reasonably necessary to protect the legitimate interests of the stronger party;
  3. whether the weaker party could understand the documentation used;
  4. the use of undue influence, pressure or unfair tactics by the stronger party;
  5. the requirements of applicable industry codes;
  6. the willingness of the stronger party to negotiate;
  7. the extent to which the parties acted in good faith.

An example of unconscionable conduct is encouraging a resident to sign a Village Contract knowing that the resident does not have the skills to understand the terms of the Village Contract.

Misleading and Deceptive Conduct

Village Operators must not engage in conduct that is misleading or deceptive or is likely to mislead or deceive.11 Village Operators should ensure that any statements, including those used in their marketing materials, are true, accurate and able to be substantiated.

Contraventions of the ACL in respect to false or misleading conduct will attract a pecuniary penalty. The maximum penalty is $1.1 million for corporations and $220,000 for individuals.

Incorrect Representations

In addition to the ACL, retirement village legislation may also include prohibitions for making incorrect representations. For example, section 17 of the Retirement Villages Act 1999 (NSW) states that a retirement village operator is prohibited from making incorrect representations, including representations:

  • which are knowingly inconsistent with the information contained in the disclosure statement provided to the prospective resident;
  • which are knowingly about an existing or future service or facility which is/will be provided or available at the village unless the services or facility is provided; or
  • which are prohibited by the regulations, for example, that the resident is likely to make a capital gain on vacating the premises or that residents of the village have priority access to residential care by an approved provider under the Aged Care Act 1997 (Cth).

The penalty for making a false representation is 50 penalty units, that is $5,500.

NSW reforms and Retirement Villages Regulation 2017 (NSW)

The Retirement Villages Regulations 2017 (NSW) will commence on 1 September 2017.

The proposed changes are as follows:

  • clarifying that re-painting of external surfaces once every 10 years is capital maintenance;
  • requiring copies of a village's insurance policy documents be available to residents;
  • a new 'average resident comparison figure' in the Disclosure Statement to facilitate more effective comparison between villages;
  • reducing the maximum amount payable for an operator's legal and other expenses to $50;
  • adding new matters for which village rules can be created, including smoking in communal areas;
  • requiring clearer information in annual budgets around head office expenses;
  • lowering the maximum amount allocated for contingencies to $1;
  • prohibiting additional matters that cannot be financed by recurrent charges;
  • simplifying the process for allowing residents to hold office on a residents committee for longer than three years; and
  • allowing service of documents by electronic means.

STOP PRESS: The Retirement Village Regulation 2017 (NSW), which commenced on 1 September 2017, is now available at: https://www.legislation.nsw.gov.au/~/view/regulation/2017/485. NSW Fair Trading states that the key changes are as follows (which differs from the proposal in our above article drafted before the final regulations were published):

  • requiring copies of a village's insurance policy documents be available to residents;
  • a new 'average resident comparison figure' in the Disclosure Statement to facilitate more effective comparison between villages;
  • reducing the maximum amount payable for an operator's legal and other expenses to $50;
  • adding new matters for which village rules can be created, including smoking in communal areas;
  • requiring clearer information in annual budgets around head office expenses;
  • lowering the maximum amount allocated for contingencies to $1;
  • prohibiting additional matters that cannot be financed by recurrent charges;
  • simplifying the process for allowing residents to hold office on a residents committee for longer than three years; and
  • allowing service of documents by electronic means.

Footnotes

5 Australian Consumer Law, Section 23
6 Australian Consumer Law, Section 27
7 Australian Consumer Law, Section 24
8 Australian Consumer Law, Section 26(1)
9 Australian Consumer Law, Section 25
10 Australian Consumer Law, Section 20
11 Australian Consumer Law, Section 18

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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