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Client Update: Retirement Villages – 16 December 2008

Retirement Villages Amendment Bill 2008 enacted by NSW Parliament

In brief: In our Client Update: Retirement Villages – 30 June 2008, we reported on the introduction of the Retirement Villages Amendment Bill 2008 into the NSW Parliament and the proposed key amendments to the Retirement Villages Act 1999 (NSW). The Bill was assented to on 10 December 2008, following a number of amendments made during the Bill's passage through the NSW Parliament. Senior Associate Rebecca Barr and Lawyer Alma Alic report.

Key amendments proposed by initial Bill


Some of the key amendments proposed by the Retirement Villages Amendment Bill 2008 (the Bill) to the Retirement Villages Act 1999 (NSW) (the Act) included the introduction of a capital gain definition, settling-in period, statutory charge regime and changes to the liability of former residents for recurrent charges.


Another proposed change of significance was to the respective liabilities of residents and operators for capital maintenance and replacement costs.  The proposed change was intended to alleviate disputes about the distinction between capital maintenance and replacement work (and, accordingly, who was to be responsible for the costs of such work) by:

  • requiring an operator to carry out capital maintenance and replacement work within a reasonable time; and
  • allowing the operator to fund a proportion of not only capital maintenance costs, but also capital replacement costs, through recurrent charges in certain circumstances. 


The initial Bill proposed a combined definition of capital maintenance and replacement of an item of capital to support those amendments. 


Interestingly, the initial Bill also proposed to introduce special capital maintenance and replacement cost allocations for registered interest holders.1

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Amendments to the initial Bill


Since the introduction of the Bill into the NSW Parliament on 26 June 2008, the proposed changes to the capital maintenance and replacement responsibilities of residents and operators have been modified.


The key changes comprise the withdrawal of:

  • provisions which would have allowed operators to fund capital replacement costs from recurrent charges in certain circumstances; and
  • the special capital maintenance and replacement cost allocations for registered interest holders.

 

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Final form of capital maintenance and replacement provisions


In summary, the capital maintenance and replacement provisions of the final Bill:

  • provide that an item of capital for which an operator is responsible means any item of capital in a village, other than an item of capital owned by a resident, or that is association property under a community land scheme or common property under a strata scheme, or is otherwise part of a class prescribed by the regulations;
  • require an operator to maintain each item of capital for which the operator is responsible in a reasonable condition having regard to the age of the item, the prospective life of the item, and the money paid to the operator by the residents under a village contract (including ingoing contributions).  If it is impractical to maintain the item of capital having regard to those matters, an operator may replace the item;
  • provide that the operator can fund the cost of capital maintenance in respect of which the operator is responsible from:
    • the capital works fund for the village (if any); and
    • recurrent charges.

The operator must bear the cost of capital replacement in respect of an item for which the operator is responsible. 
The final Bill retains the distinction in the Act between capital maintenance and capital replacement, although new definitions of capital maintenance and capital replacement have been inserted.  It appears that the regulations will provide further assistance in drawing a distinction between those concepts;

  • require a capital works fund to be established and maintained if an approved annual budget provides for setting aside any part of the recurrent charges for the purpose of funding capital maintenance in a period that extends beyond the financial year to which the budget relates;
  • omit the requirements to establish and maintain a maintenance fund and capital replacement fund.  There are transitional arrangements in regard to those funds, if already established in a village;
  • allow a resident to carry out capital maintenance or capital replacement work if the work is urgent and the resident has given the operator a reasonable opportunity to carry out that work.  The final Bill outlines when maintenance or replacement of an item of capital will be regarded as urgent for the purposes of the Act; and
  • prohibit an operator from selling an item of capital for which the operator is responsible, or passing on responsibility for any such item, to a resident or prospective resident of the village under a village contract or otherwise, except as provided by the regulations.  There are special transitional arrangements regarding this amendment.

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Commencement of the Act


The Bill was assented to on 10 December 2008. The Bill (now the Retirement Villages Amendment Act 2008) will commence at a time to be fixed by proclamation.  At this stage, it is anticipated that the Bill will commence in several months' time.


Operators should obtain legal advice regarding the impact of the amendments on their village operations.


 

Footnotes
  1. Refer to Client Update: Retirement Villages – 30 June 2008 for the definition of registered interest holder. The special costs allocation was to be based upon the capital gain share split between a resident and operator in the relevant village contract.  

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