Assisted by Jason Vo
In February this year we informed you about changes to the retirement village legislation that took place on 1 July. Following this, the NSW Government has announced that it is looking to bring forth further proposed reforms recommended by the independent 2017 Greiner Inquiry into the NSW Retirement Village Sector, with the release of the ‘Retirement villages – exit entitlements and recurrent charges cap’ Discussion Paper. The two key proposed reforms involve exit entitlements and recurrent charges rules. These reforms aim to lessen the financial burden for residents wishing to leave their retirement village premises.
However, before I delve into what the proposed reforms regarding recurrent charges involve, I would like to outline what the current exit entitlements are and the proposed reform to its rules.
Current Exit Entitlements Timings
The Retirement Villages Act (the Act) is the legislation governing retirement village contracts.
Under the Act, for former occupants who were non-registered interest holders, village operators must make any refund of the former occupant’s ingoing contribution that is required under a village contract within a maximum of six months after the former occupant permanently vacates the premises.
However, for former occupants who were ‘registered interest holders’, unless the contract provides for earlier payment, village operators do not have to pay exit entitlements until after their unit is sold; and then after that, within 14 days after one of the following events takes place:
- an operator receives full payment under a residence contract with an incoming resident; or,
- an operator enters into a village contract with an incoming resident; or,
- an operator enters into a residential tenancy agreement with an incoming tenant; or,
- a person takes up residence in the premises with the consent of the operator.
Unlike with non-registered interest holders, under this provision the payment of exit entitlements relies on the sale of the premises and the securing of an incoming resident. Therefore, the time as to when exit entitlements will be paid is uncertain for former residents.
In a restricted property market such as the retirement village sector, the uncertainty and time delay makes moving to another village or aged care facility difficult for residents who are dependent on receiving payment of exit entitlements to pay for their new accommodation.
The Proposed Reform for Exit Entitlements
The NSW Government is proposing the introduction of a definite time as to when village operators must pay exit entitlements to registered interest holders. The proposed time periods are a maximum of six months for villages in the Sydney Metropolitan Area, and 12 months for villages in regional areas.
Current Recurrent Charges
Recurrent charges are the fees paid to the retirement village operator for providing general services such as staffing, gardening, cleaning, and optional services such as food, outings, hairdressing and nursing. The services covered by recurrent charges will often be specified in a retirement village contract. These recurrent charges are charged on a continual basis throughout the year.
For non-registered interest holders, their liability to pay recurrent charges for general services ceases, at the latest, 42 days after they permanently vacate their premises as per the Act.
However, registered interest holders are also required to continue to pay for the recurrent charges that arise after 42 days, until the premises are sold and a new resident takes up occupation of the premises. This is paid in the same proportions as the former occupant and the operator of the retirement village would share any capital gain under the village contract. This holds even if they are not residing there whilst waiting for the sale and are not using these services during this period of time. Since the time for selling the premises is uncertain, this continuing liability can prove to be very costly for former residents and their families.
The Reform to Limit Recurrent Charges
The proposed reform is to have the registered interest holders’ liability to pay for recurrent charges for general services mirror that of non-registered interest holders. That is, there will be no requirement to pay for recurrent charges after 42 days have passed since a former resident (registered and non-registered interest holders) has permanently vacated the premises.
What Does this Mean for You?
Of course, it will take some time before these proposed reforms can take place. We will keep you updated on the progress of these proposed reforms, as well as the interim and final reports from the Royal Commission into Aged Care Quality and Safety. Meanwhile, former residents are still subject to the liability to pay for recurrent charges for general services.
If you’re looking to leave your retirement village premises and need advice, or looking to negotiate the ingoing contribution and the recurrent charges to be required in your new contract, please don’t hesitate to get in contact with Coleman Greig’s Commercial Property team: