The Queensland Department of Housing recently released its latest Regulatory Guideline (Guideline), dealing with the costs retirement village operators may charge former residents when reselling their units. While the Guideline provides useful clarification, one statement should be treated with caution, as it does not appear to be supported by its parent legislation.
Regulatory guidelines generally
Under the Retirement Villages Act 1999 (Q) (RV Act), the Queensland Department of Housing (Department) may make and publish guidelines about:
- the attitude the Department is likely to adopt on a particular matter;
- how the Department administers the RV Act; or
- matters that may help persons comply with their obligations or responsibilities, or lawfully and appropriately exercise powers, under the RV Act.
The purpose of these guidelines is to give operators practical guidance on how to comply with their legislative obligations. However, they must not be inconsistent with the RV Act. They are not law – they are simply the Department’s interpretation of the law.
Costs of reselling retirement village units
The ability of retirement village operators to pass on a portion of unit resale costs to former residents is governed by Section 68 of the RV Act.
The section contains a general prohibition on operators charging former residents a fee, charge or commission in this regard (however described). Pecuniary penalties apply for non-compliance.
However, this is subject to two exceptions:
- Former residents are required to pay 100% of the costs and commission of any real estate agent they engage themselves. Generally, operators control the resale process. However, the RV Act entitles former residents to engage their own real estate agent if their unit has not been resold within 6 months after termination of their residence contract, unless they have received their exit entitlement; and
- Otherwise, the “costs of the sale of a right to reside in a particular accommodation unit” are to be shared by the operator and the former resident. The ratio in which these costs of sale are to be shared is the same ratio in which the parties are to share the next gross ingoing contribution (payable by the next resident of the unit).
The upshot of these provisions is that an operator cannot itself impose on a former resident a fee, charge or commission for reselling the former resident’s right to reside in their unit. However, an operator may pass on a share of the operator’s costs of sale, as described above.
New Regulatory Guideline
The Department recently issued its Guideline about the unit resale costs an operator may charge a former resident. A copy of the Guideline may be found here.
According to the Guideline, it was issued in response to the Department’s concerns regarding operators:
- failing to state the particulars of costs charged to former residents relating to resales; and
- charging former residents amounts for resales which are not in accordance with legislative requirements.
The key focus of the Guideline is to clarify the Department’s view as to what costs of sale properly fall within the scope of the second exception referred to above (a share of which may be passed on to former residents) and those which do not.
Helpfully, the Guideline clarifies that properly chargeable costs of sale:
- refer to actual costs incurred;
- must relate to a particular unit;
- must be quantifiable and itemised;
- may include advertising the unit for sale on a website;
- may include staff costs for demonstrating the unit and explaining village lifestyle options to prospective residents;
- may include valuation costs to determine the unit’s resale value;
- must not be calculated as, or include, a percentage of general marketing costs for the entire village or village brand;
- but may include a proportion of marketing costs for the joint advertisement of one or more units within the village that are for sale;
- may include other costs not specifically mentioned in the Guideline; and
- must be detailed in the former resident’s Exit Entitlement Statement, together with an explanation of the calculation used to determine the resident’s portion.
A bridge too far?
However, the Guideline also states that properly chargeable costs of sale cannot be calculated as a percentage of sale proceeds or as a percentage of the ingoing contribution. This statement appears to be too broad. The RV Act makes no reference to resale costs calculated on a percentage basis, whether to allow or prohibit them.
It is certainly true that a retirement village operator cannot itself impose on a former resident a fee, charge or commission for reselling the former resident’s right to reside in their unit calculated on a percentage basis (or on any other basis for that matter).
However, as stated above, this general prohibition is subject to the operator’s right to pass on a share of its costs of sale. In this regard, consider the following scenario:
- An operator engages a third party (such as a real estate agent) to market a former resident’s unit for resale on behalf of the operator; and
- In exchange for providing this service to the operator, the operator and the agent agree that the agent’s remuneration will be calculated on a percentage basis, depending on the resale price achieved.
In those circumstances, the agent’s remuneration – regardless of being calculated on a percentage basis – represents an actual and quantifiable cost to the operator of reselling that particular unit. It is difficult to see how anything contained in the RV Act would prohibit the operator from on-charging a portion of this cost to the former resident, on the basis of the second exception referred to above. Accordingly, this prohibition as stated in the Guideline appears to be an over-generalisation.
In our experience, it is not common for retirement village operators to engage real estate agents to assist them in reselling units, given agents’ limited understanding of how retirement villages work. However, it is important that regulatory guidelines issued by the Department are accurate and consistent with the Act. To this end, we wrote to the Department to raise this concern on the day the Guideline issued, but have not yet received a response.
What retirement village operators should Do
Operators should definitely not themselves impose on former residents a fee, charge or commission for reselling a former resident’s unit calculated on a percentage basis (or any other basis), as this is clearly prohibited by the RV Act.
However, it is clearly permissible to pass on the appropriate portion of costs incurred in relation to the resale, including for services rendered by third parties. As stated in the Guideline, these must be actual and quantifiable costs incurred in relation to the resale of a particular unit.
For operators who engage a real estate agent to resell their retirement village units in exchange for remuneration calculated on a percentage basis, it may be prudent to adopt an alternative practice pending the Department’s response to the concern we have raised with them. For example, it may be appropriate to instead agree with the agent that their remuneration will be calculated as a flat fee, or as a series of flat fees by reference to bands of potential resale prices.
Regardless, if an operator proposes to pass on to a former resident a portion of the operator’s resale costs, this should be clearly disclosed in the former resident’s contract and associated disclosure documents, before they enter the village.
Operators should also familiarise themselves with the following related regulatory guidelines and, if required, seek advice on how to apply them and the principles referred to above:
- How to calculate the percentage of proportionate costs for selling a right to reside and sharing ongoing resident fees after termination – https://www.chde.qld.gov.au/__data/assets/pdf_file/0022/34564/regulatory-guideline-retirement-villages-calculating-proportionate-costs.pdf
- Exit entitlement statements –https://www.chde.qld.gov.au/__data/assets/pdf_file/0015/36060/regulatory-guidelines-retirement-village-exit-statements.pdf
