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Client Update: Retirement Villages - 30 June 2008

Retirement Villages Amendment Bill 2008 introduced into NSW Parliament

In brief: Following a lengthy review process, the Retirement Villages Amendment Bill 2008 was introduced into the NSW Parliament on 26 June 2008. The Bill proposes extensive amendments to the Retirement Villages Act 1999 (NSW). Partner Mark Stubbings (view CV) and Senior Associate Rebecca Barr outline the key amendments. 

New definition of capital gain

The Retirement Villages Amendment Bill 2008 (the Bill) follows the consultation draft of the Bill released for public comment in 2006 (the 2006 Bill), with some important changes. One of those changes resolves the omission of a capital gain definition from the Retirement Villages Act 1999 (NSW) (the Act), which has been the subject of a number of recent disputes between residents and operators.1  The Bill now proposes a capital gain definition, which should be a welcome step towards certainty for residents and operators.

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Settling-in period

The Bill proposes to introduce a settling-in period. If passed, a settling-in period for a resident will run until the later of:

  • the day that is 90 days after the date on which the resident is entitled to occupy the premises concerned under the residence contract for the premises, or
  • if the resident occupies the premises before the day specified in the preceding paragraph, the day that is 90 days after the resident first occupies the premises, or
  • a date that is agreed by the operator and resident.

If a village contract is terminated before the end of a settling-in period, a former occupant's liability for certain payments under a village contract will be limited to fair market rent if applicable, and other amounts prescribed by the Act and its regulations. In addition, the Bill specifies that certain amounts must not be charged to a former occupant who terminates a village contract before the end of the settling-in period, including:

  • recurrent charges, and
  • departure fees (also known as exit fees and deferred management fees in other state jurisdictions).

The drafting of the definition in the 2006 Bill left open the possibility that a settling-in period could run indefinitely if a resident did not occupy the premises in question. The current Bill appears to redress that issue.

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Registration of retirement village land

The Bill requires land used as a retirement village to be notified to the Registrar-General. If the land is already used as a retirement village immediately before the commencement of proposed section 24A, the operator of the village must provide the notice within three months after such commencement. Otherwise, the notice must be provided before an operator enters into a residence contract with respect to residential premises on that land.

Upon receipt of the notice, the Registrar-General must record that the land to which the notice relates comprises, or is part of, a retirement village.

The Bill also provides for holders of other registered interests in the land, and any residents' committee of the village, to be notified of the recording.

The Bill states that information recorded may be used to establish a list of retirement villages. This amendment may bring NSW into line with the practice in other states of maintaining retirement village registers.2

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Statutory charge to protect certain ingoing contributions

Currently, the refund entitlements of residents of retirement villages in New South Wales are not protected by a statutory charge regime under the Act. This is in contrast to the position in other states, where statutory charge regimes have already been established.3

The Bill proposes that if a resident (other than a registered interest holder) has paid an ingoing contribution and is entitled to a refund of the whole or part of that ingoing contribution, the refund will be secured by a statutory charge over the retirement village land in certain circumstances.4  

A statutory charge will not be created over land that is not recorded as a retirement village under proposed s24A (discussed in the previous section) and to land in respect of which a resident is a registered interest holder. 

In certain circumstances, the amendments will apply to village contracts already in force.

The Bill provides a process for the enforcement of a statutory charge and the order of priority of interests in the retirement village land. 

The 2006 Bill had proposed that retirement village land subject to a statutory charge could not be disposed of other than by a court order. This issue has been redressed in the Bill, which allows for disposal of any such land in the course of the sale of a retirement village as a going concern. Subsequent owners will be bound by a statutory charge created under the Act, unless the land is sold in accordance with a court order under proposed Part 10A of the Act.5  

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Liability of former occupants to pay recurrent charges

The Bill modifies the liability of a former occupant to pay recurrent charges that arise after permanent vacation of the premises.

Former occupants who are registered interest holders will be liable to pay recurrent charges in full during the 42 days immediately after the former occupant has permanently vacated the premises. After that period, the former occupant and operator will be liable for recurrent charges in the same proportions as those parties would share any capital gain under the village contract.

Former occupants who are not registered interest holders will cease to be liable for recurrent charges on the date that is 42 days after the date on which vacant possession has been given, (unless liability to pay recurrent charges has already ceased in accordance with the Act).

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Other changes

The Bill proposes other substantive changes to the Act, including amendments to:

  • the process for setting village budgets and increasing recurrent charges
  • the liability of residents and operators for capital maintenance and replacement, and
  • financial reporting obligations.

Many of the amendments apply retrospectively to existing village contracts. We will report on further developments.

Footnotes
  1. Hayes v Fernbank Developments Pty Ltd [2006] NSWCTTT 394; Turner as executors of the will of late Lloyd Edgehill Turner (Retirement Villages) [2007] NSWCTTT 599.
  2. Retirement village registers (kept with varying levels of detail) are maintained by the South Australian, Victorian and Queensland government departments which administer the respective Retirement Villages Acts.
  3. For example, statutory charge regimes apply under the Retirement Villages Acts of South Australia, Victoria, Queensland and Western Australia. 
  4. Paragraph 149 of Schedule 1 of the Bill. Proposed s7 (paragraph 11 of Schedule 1 of the Bill) defines 'registered interest holder'.  In summary, a person will be a registered interest holder with regard to a unit if the person owns a freehold interest in the unit and as such has a residence right in respect of the unit, owns shares in a company title scheme giving rise to a residence right in respect of the unit, or holds a registered long-term lease which entitles the resident to at least 50 per cent of any capital gain. A registered long-term lease means a lease registered under the Real Property Act 1900 (NSW) that has a term of at least 50 years (including any option to renew), or is for the life of the lessee. 
  5. Proposed ss 182C(2), 182D and 182I in paragraph 149 of Schedule 1 of the Bill.

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