The Queensland Retirement Villages Amendment Act 2006


by Joanne O'Brien, Carne Reidy Herd

Released July 2006

The amendments to the Queensland Retirement Villages Act 1999 (“the Act”) were assented to on 15 March 2006, after an exhaustive review and consultation process, which began in September 2001.

The main objective of the amendment act was to provide increased consumer protection for what the Government sees as one of the most vulnerable groups in our community; elderly retirees. The promotion of consumer protection and fair trading practices has been added as one of the primary objects of the Act set out in Section 3 and the amendments are aimed at:

The most significant changes have been made in relation to:

  1. Disclosure

  2. The cooling off period

  3. General Services Charges

  4. Budgeting for the Capital Replacement Fund and Maintenance Reserve Fund

  5. Financial Accounts and Statements

  6. The Resale process

  7. Relatives right to reside

This paper looks at each of those changes and the potential impact they will have on residents and operators.

RETROSPECTIVITY

Despite very strong opposition from the Retirement Village industry, four of the amendments have retrospective effect.

1.    Nine month cap on general services charges

For Contracts entered into after 1July 2000, Section 104 provides that the resident’s liability to continue paying general services charges ends if a unit remains unsold at nine months from the date of vacation, regardless of any contractual provision to the contrary.

2.    Exit fee calculated at date of vacation

The exit fee calculation date for all contracts will now be the date the unit is vacated1  Previously, for contracts entered into before 1 July 2000 the calculation was made at the date the unit was sold resulting in higher exit fee calculations for pre-Act contracts.

3.    New Reinstatement Standard

The new reinstatement standard based on marketable condition2  applies to all contracts regardless of when they were entered into or any contractual provision to the contrary.

4.    Time for Agreeing on Reinstatement Work

The time frame allowed for the resident and operator to agree on the reinstatement work is now thirty days for all contracts3.

This departure from the general rule that legislative changes should not retrospectively affect the rights of individuals was considered necessary because of the Government’s concerns regarding the perceived imbalance in the contracting powers of the parties to a residence contract.  The commercially minded scheme operator on one side and the vulnerable retiree on the other.

COMMENCEMENT

Amendments imposing additional budgeting requirements and responsibilities will all commence on 1 Jan uary 2007.  The purpose of this delayed introduction is to allow operators sufficient time to adopt new procedures, train staff and implement the changes.

Amendments creating new restrictions on insurance excesses will commence on a date to be fixed by proclamation so that they will commence at the same time as related amendments to be made to the Retirement Villages Regulation 2000.

All other amendments commenced on 15 March 2006.

DISCLOSURE

Public Information Document (“PID”) and Residence Contract

The additional requirements for these documents are:

  1. A PID must be in the approved form and relate to only one Retirement Village Scheme4.  A new version of the approved form has been released by the Office of Fair Trading for use by operators from 17 March 2006.

  2. Along with information relating to insurance arrangements, the PID must include the amount of any excess to which any insurance policy is subject5.

  3. Where a scheme operator proposes to start levying a charge for facilities to be provided at some point in the future, the PID must state when the scheme operator proposes to start levying a charge for those facilities6.

Example: If the operator intends building a community facility and swimming pool at the end of Stage 1 of the construction of a new village, the PID must state when the operator proposes to commence including charges relating to those facilities in the general services charge. 

However, as the statement need only be as general as saying that the operator proposes to start levying a charge for that facility when the facility is complete, it adds little to the disclosure information provided to prospective residents.

  1. The requirements to disclose inaccuracies in the PID in Section 36 have been strengthened.  Full written disclosure must be made within 28 days after the scheme operator becomes aware of the inaccuracy to the Chief Executive and to each resident who is, or who is likely to be materially affected by the inaccuracy.

This now includes any person who has signed a Residence Contract for which the cooling off period has not ended and a person who has indicated that they intend signing a Residence Contract.  Failure to inform a person falling into any one of these three categories attracts a maximum penalty of 540 penalty units.

  1. The interpretation of inconsistency in the contract documents is now skewed very much in favour of residents with Section 37 providing that:

  1. If a provision in a PID is inconsistent with a provision in any other part of the Residence Contract, the provision that is more beneficial to the resident will prevail; and

  2. If a provision in a PID is inconsistent with the Act, the Act prevails.

COOLING OFF PERIOD

Residence Contracts continue to be subject to a fourteen day cooling off period.  However, the changes made in respect of the commencement of the cooling off period have created uncertainty for prospective residents, operators and former residents.

To fully understand the changes, it is necessary to look at the definition of “cooling off period” contained in the dictionary which is as follows:

“cooling off period for a residence contract means a 14 day period starting on:

  1. the day the contract is signed;  or

  2. if the residence contract is subject to a later event happening or another contract being entered into – the day the later event happens or the other contract is entered into.”

Under Section 45(1), if the cooling off period starts on the day the residence contract is signed, the residence contract must state the date the cooling off period ends.  If the cooling off period starts on the day a later event happens or another contract is entered into, the residence contract must state the later event or other contract.

The effect of this amendment can best be understood by way of example.  If Mr and Mrs Brown want to purchase a unit in Greenacres Retirement Village , but are unable to pay the ingoing contribution until their property at 16 Blackside Street has been sold, industry practice has been to include a special condition in the residence contract along the following lines:

“This contract is subject to the resident entering into and settling a contract for the sale of their property at 16 Blackside Street on or before 30 June 2006.”

Prior to the 2006 amendments, the cooling off period would have commenced on the date the contract was signed.  When the cooling off period ended, the contract would still be subject to the sale of the resident’s existing property being settled ensuring that they would have sufficient funds available to pay the ingoing contribution.

However, if this same special condition was to be used in a residence contract entered into after 15 March 2006, the cooling off period would not commence until the sale of their property at 16 Blackside Street had settled.  The effect of this would be that:

A further reason why operators will be reluctant to allow residents to move into the Village before the end of the cooling off period results from the changes to Section 63.  The operator must now pay the exit entitlement of a former resident within fourteen days after the settlement day.  The settlement day is defined as the day on which the sale of the right to reside to a new resident or the scheme operator is settled.

If an operator was to allow a resident to pay the ingoing contribution into a trust account as allowed by Section 46 and to move into the Village, the operator could be required to pay the exit entitlement of the former resident of the unit only to find that the new resident rescinds the contract under the cooling off period.

Comment

Lawyers advising scheme operators will be looking for inventive ways to draft special conditions to accommodate these new requirements.  However, given the uncertainties of the conveyancing process, it is unlikely that those special conditions will satisfy lawyers advising new residents.  The result may be that many operators will now simply refuse to contemplate residence contracts subject to the sale of an existing home.

GENERAL SERVICES CHARGES

The general services budget and increases to the general services charge have been the source of greatest friction between residents and operators.  This has resulted from:

Setting the Budget

The new Section 102A, which comes into, effect on 1 Jan uary 2007 requires a scheme operator to adopt a general services budget for each financial year.  The budget must:

The residents committee can give the operator a written request to provide it with a copy of the draft budget at least fourteen days prior to the beginning of the financial year.  Such notice must be given at least twenty-eight days before the beginning of the financial year.

This regulatory framework reflects industry practice and is one of the measures designed to address the perceived lack of transparency and accountability provided by operators in respect of village finances.  The residents committee is only entitled to view the draft budget and has no right of veto meaning that responsibility for finalising the budget still rests with the scheme operator.  It is therefore uncertain whether these changes will facilitate better co-operation between residents and operators in formulating the village budget.

Section 102A has clarified one important point with Subsection 6 providing that if there is a surplus or deficit at the end of any financial year, that surplus or deficit must be carried forward and taken into account in adopting the general services budget for the next financial year.  This is one of the exceptions to the limit on increasing general services charges contained in Section 106.

Increasing General Services Charges

The conflicting decisions which have come out of the Commercial and Consumer Tribunal between:

  1. The basket approach7 which allowed the general services charge to be increased so long as the increase in the total charges did not go above the CPI limit; and

  2. The line by line approach8 which required each budget item to be scrutinised to ensure it did not increase by more than the CPI increase

appears to have been resolved in favour of the basket approach.

The reworded Section 106 introduces the new concept of “total of general services charges”.  The stipulation that this total must not increase by more than the CPI percentage increase for a given financial year suggests that the Government has opted for the basket approach.

However, a closer examination of the definition of “total of general services charges” reveals that it is by no means certain that this is the case.  Total of general services charges is defined as:

The sum of all charges for general services for the financial year other than:

  1. A charge for a general service that has been increased by more than the CPI percentage increase and approved by special resolution at a residents meeting; and

  2. A charge for a general service that has been increased by more than the CPI percentage increase and is allowed under Section 107.

The result is that if the total increase is more than the CPI percentage increase for any given financial year; the operator will have to revert to a line by line approach to either:

The issue is further complicated by the new Section 107A which requires the scheme operator to consider whether there is a more cost effective alternative before increasing the charge for a particular general service.  This additional requirement could see a more protracted budgeting process with residents committees requiring evidence that the scheme operator has looked into alternative means of providing services.  This raises the potential for friction between residents arguing the case for the cheapest method of providing a service and the operator looking to provide a quality service, which will maintain the value of the village.

Ongoing Obligation to Pay General Services Charge

The most significant changes are:

  1. A nine month cap on a resident’s obligation to continue paying the general services charge after they have vacated their unit; and

  2. The sharing of charges from day 91 to nine months in the same proportion as the resident and operator share in the gross ingoing contribution on the resale of the unit.

The process

A resident who has vacated a unit continues to be liable for the general services charge until the first of the following events occurs:

  1. The unit is sold;

  2. Ninety days elapses; or

  3. The Commercial and Consumer Tribunal orders the operator to pay the exit entitlement.

The position during the first ninety-day period after vacation is unchanged.

However, if the unit remains unsold after the ninety days has elapsed, then the resident and the scheme operator are to pay the charge in the same proportion as they share the gross ingoing contribution on the sale of the unit.

This continues until either the unit is sold or nine months has passed since the resident vacated the unit.

Comment

During the consultation process, submissions made on behalf of residents identified the uncertainty of rights following vacation of a unit and the financial impact of the continuing liability to pay the charge as major concerns.  In line with the consumer protection focus, the Government has moved to limit the onus on residents to continue paying the village’s operating costs and to clarify the obligations of both parties.

The nine month cap was chosen because, based on information provided by the industry, the Minister determined that under “usual market conditions” most units sell nine months after vacation, 9 nd Aged Care Queensland incorporated in its submissions in response to the consultation draft bill made on 6 October 2005 reported that the average time taken to sell a unit is four months, with a range from one to fourteen months.  This data suggests that, for most operators, the new nine-month cap will have minimal financial impact.

However, there will be a financial incentive on operators of villages which are below standard and therefore experiencing long delays in resales, to improve their business practices and the Government sees it as a way to lift standards in the industry

This new concept of gross ingoing contribution is defined as the ingoing contribution before any deductions, including the exit fee are made.  Prior to 15 March 2006, the proportion was calculated based on the “sale proceeds”, a term which was not defined.  The change clarifies how the calculation should be made in favour of residents.

BUDGETING FOR THE CAPITAL REPLACEMENT FUND AND MAINTENANCE RESERVE FUND

These changes come into effect on 1 Jan uary 2007. 

It is no longer necessary to obtain a full Quantity Surveyor’s Report in relation to these funds on a yearly basis.  Full reports need only be obtained in:

In years when a full report is not required, an update of the previous full report is to be obtained.

There is a new requirement for the scheme operator to use its best endeavours to implement the report’s recommendations in the context of:

  1. The objects of the Act; and

  2. Any circumstances relevant to the village but apparently not considered by the Quantity Surveyor.

A concerning aspect of the change is that it suggests the Quantity Surveyor’s report provides a spending or maintenance program rather than projections of anticipated maintenance and capital replacement requirements.

The residents committee is given a say in the budget for the two funds by being able to require the scheme operator to:

Comment

The increased involvement of the residents committee in the budgeting process will be a double-edged sword for those committees.  It allows greater transparency and involvement of residents in financial decision making for their village but for those residents who are members of the committee, it will bring increased expectations and greater pressure from other residents or their representatives.

MAINTENANCE OR REPLACEMENT?

When does repair of a capital item cross the line and become replacement of that item?  If it is repair, it is paid for from the maintenance reserve fund and therefore paid for by the residents but if it is replacement, the expenditure is met by the capital replacement fund and therefore, the scheme operator.  This distinction has been the source of many disputes and was identified as one of the most contentious issues during the review of the Act.

The new Section 113A permits a regulation to be made prescribing model rules about the classification of items of expenditure.  These model classification rules may:

  1. Classify how a particular item of expenditure must be dealt with;  and

  2. Require scheme operators to classify how other items of expenditure must be dealt with.

It will be mandatory for scheme operators to comply with the model classification rules.

If the rules leave it to the scheme operator to classify how items of expenditure must be dealt with, then the scheme operator must provide the residents with a written notice of how it intends to classify those items.

Expenditure is dealt with for the purposes of the Section if it is:

  1. Debited to the capital replacement fund;

  2. Debited to the maintenance reserve fund;  or

  3. Levied as a general services charge.

This is another provision aimed at imposing greater consumer protection, through the model classification rules and, increased resident involvement in the financial management of the village.

FINANCIAL ACCOUNTS AND STATEMENTS

There has been no change to the frequency of providing financial statements to residents: 

However, Sections 112 and 113 clarify that in addition to showing the income and expenditure of the capital replacement fund and maintenance reserve fund, the statements must also list the expenditure involved in providing each general service.  

Under Section 112, the residents committee may request a document providing further details of the quarterly financial statements.  If requested, the document must explain:

  1. The expenditure involved in providing each general service; and

  2. Any increase in the expenditure involved in providing each general service that varies from the expected expenditure for that service as provided for in the general services budget.

The purpose of this document is to enable residents to see the overall cost of supplying particular general services, not the individual items of expenditure related to those services. 13

For example, the document should show the total cost of providing a swimming pool to residents rather than the individual costs of chemicals, cleaning equipment, electricity and water.

Section 90 re-states the position that a scheme operator is solely responsible for the cost of the retirement village’s capital improvements. 

The new Sections 90A and 90B also re-state the position that if a resident requests that a capital improvement be made to the resident’s unit and the scheme operator agrees to make that improvement, the resident is solely responsible for the cost of the capital improvement.

Where the residents of a village request capital improvement to the village and the operator agrees to make the improvement, all residents are jointly responsible for the cost of the improvement.  This is a change from the previous position where residents were jointly and severally responsible.

Under Section 90C, a resident who has vacated the village ceases to be responsible for any part of the cost when they stop being responsible for ongoing general services charges under Section 104.  If that occurs, the scheme operator becomes liable for the resident’s share of the cost of the capital improvement.

Under Section 90D, residents can have the scheme operator obtain quotes for the capital improvements.

These changes again provide greater transparency and clarify procedures but potentially increase the administration load of scheme operators and expose them to additional costs.  It is possible that result will be that operators simply refuse to agree to capital improvements requested by the residents.

RESALE PROCESS

There have been major changes to the process and rights and obligations of the parties as follows:

Standard of Reinstatement Work

The new standard which applies to all contracts is that the unit be reinstated to a marketable condition having regard to:

  1. The condition of the unit at the start of the resident’s occupation;  and

  2. The general condition of other accommodation units in the village that are comparable with the resident’s unit.

Operators are no longer able to require that the unit be returned to the condition it was in at the beginning of the resident’s occupation.

Who Pays for the Reinstatement Work?

In freehold schemes, the resident continues to be liable for the cost of the reinstatement work.

In leasehold or licence schemes, who pays for the reinstatement work depends on when the residence contract was entered into.  However, in all cases, residents are responsible for the cost of reinstatement work caused by accelerated wear or deliberate damage to the unit.

For other reinstatement work:

  1. For contracts entered into before 15 March 2006, if the contract states who is to pay for the work then that person continues to be responsible for payment.

  2. If the contract does not state who is to make the payment then  for contracts entered into between 1 July 2000 and 14 March 2006, the scheme operator is to pay for the reinstatement work.

  3. For contracts entered into before 1 July 2000, the resident and the scheme operator share in the cost of the reinstatement work in the same proportion as they are to share in the gross ingoing contribution paid on the sale of the unit;

  4. For contracts entered into from 15 March 2006 onwards, the cost of reinstatement work will be paid by:

  1. if the resident and scheme operator share in any capital gain on the sale of the unit, they will share the cost of the reinstatement work in the same proportion that they share the capital gain;  or

  2. otherwise the scheme operator will be solely responsible.

If the scheme operator must pay the cost of reinstatement work, it is to be paid out of the capital replacement fund.

Comment

It is anticipated that these changes will have the following effects:

Ultimately, it is unlikely that these changes will have the desired effect of decreasing the financial impact on residents when they leave the village.  Operators will simply look for other ways as suggested above to compensate themselves for these increased costs.

Time for Payment of the Exit Entitlement

The exit entitlement must be paid no later than fourteen days after the settlement date for the resale of the unit.  This is a reduction from the former twenty-eight days14

Relatives’ Right to Reside

Section 70B gives rights to relatives of a resident who are not parties to the residence contract.  It is not uncommon for a resident to remarry after moving into a retirement village or be joined by a relative, in many cases, a child. 15 A relative or spouse in this situation has no rights under the residence contract to remain in the unit if the resident should die or move into a nursing home.

The rights given to these relatives are intended to allow them sufficient time to put their affairs in order without being forced to find an alternative home.  However, the extent of those rights will lead to operators restricting residents’ ability to have relatives stay with them.

What Rights?

The new section provides that spouses or relatives living with a resident now have the right to remain in the unit for up to three months after the resident dies or vacates the unit.

Relative is defined very broadly and includes spouses, parents, siblings and children.

There are four conditions that the relative must meet:

  1. The residence contract must be terminated;

  2. The relative must be living in the unit when the resident died or vacated;

  3. The relative must have lived in the unit for at least six months;  and

  4. The relative must agree to be bound by the terms of the resident’s contract with the operator.

For leasehold and licensed units, the relative has the first option to enter into a new residence contract for the unit.  If the relative meets the eligibility criteria for residence in the village and gives the scheme operator the proper notice, the scheme operator must enter into a residence contract with the relative before the end of the three-month period.

The contract must be on the same terms as would be offered to any other potential resident.

Negotiations regarding reinstatement work will be between the relative16and the scheme operator and the work will have to be carried out while the relative is in the unit.  The contract with the relative will therefore have to reflect any agreement reached in relation to how the reinstatement work will be carried out.

The provisions relating to relatives affect many aspects of the termination process.  For example:

DISPUTES

The main changes are:

  1. Another resident of the village who is not a lawyer;

  2. A relative who is not a lawyer; or

  3. With the leave of the Tribunal, a lawyer or any other person.

The legislative intention is to make access to the Tribunal easier and less intimidating for residents.

VOTING RIGHTS

The position in relation to voting rights at residents’ meetings has been clarified with Section 133 providing that it is one vote per unit unless the residents agree by special resolution that each resident should be entitled to a vote. 20

IN CONCLUSION

The contractual arrangements governing life in a retirement village, the relationship between resident and operator and the relationship between residents are necessarily complex.  The legislation seeks to control every aspect of those arrangements and retirement villages therefore operate in a highly regulated environment with the 2006 amendments increasing the level of regulation even further.  It is worth noting that the original 1988 Act had just over 60 sections while the newly amended Act has about 270.

For professionals to competently advise residents and operators, a detailed knowledge of the expanded issues is now more than ever required.

FOOTNOTES

  1. Section 15 of the Act

  2. Section 57 and the definition of Reinstatement work in the Dictionary

  3. Sections 57 and 58 of the Act

  4. Section 74(1) of the Act

  5. Section 75(d) of the Act

  6. Section 79(d) of the Act

  7. Philip Phillips and others v Eden Lea Retirement Village Pty Ltd 920020 QRVT3

  8. Philip Phillips and others v Eden Lea Retirement Village Pty Ltd 920020 QRVT3

  9. This rationale was provided by Cameron Crowther, Advisor to the Hon Margaret Keech, Minister for Tourism Fair Trading and Wine Industry Development at the Aged Care Queensland Retirement Living Conference on 11 May 2006. 

  10. Capital Replacement Fund – Section 92 of the Act and Maintenance Reserve Fund – Section 98 of the Act.

  11. Capital Replacement Fund – Section 93(3) of the Act and Maintenance Reserve Fund - Section 99(3) of the Act

  12. If the proper notice is given under the new Section 129B of the Act; the scheme operator must comply with the notice.

  13. Retirement Villages Amendment Bill 2006 – Explanatory Notes.

  14. Section 63(1) of the Act

  15. With the aging population, it is not unusual for an 80 year old resident to have a child who also meets the eligibility criteria for a retirement village.

  16. Who will also be the new resident

  17. Section 21 of the Act

  18. Section 173 of the Act

  19. Section 174 of the Act

  20. As the Act previously did not specify who was entitled to vote at residents meetings, it was determined by the residence contract. Refer Philips, P. G. v Edenlea Retirement Village Pty Ltd [2005] QCCTRV 8  

STUDY POINTS

  1. What are the new requirements for Public Information Documents?

  2. What will be the effect of the changes to the commencement of the cooling off period?

  3. How are the new rules expected to reduce the number of disputes over general service charges?

  4. What will be the function of the new model rules for the Maintenance Reserve and Capital Replacement funds?

  5. What will be the impact of the new rules for payment of capital improvement costs?

  6. How will the new rules relating to reinstatement work?

  7. Which provisions of the Amending Act have retrospective effect?