The Housing Legislation (Building Better Futures) Amendment Bill 2017 (the Bill) proposes major changes to the Retirement Villages Act 1999 (Q) (RV Act) that will affect every retirement village operator in Queensland. The Bill has been referred to the Public Works and Utilities Committee for detailed consideration. The Committee is due to report by 28 September 2017.
While the final form of the amendments may ultimately differ from the current version of the Bill, all Queensland retirement village operators should be aware of the following proposed changes to the RV Act.
Documentation
The required documentation for residence contracts and pre-contractual disclosure will radically change. Operators will no longer issue Public Information Documents (PIDs). Instead, the Bill provides for:
- an approved form of residence contract;
- a Village Comparison Document;
- a Prospective Costs Document; and
- Condition Reports.
The prescribed forms for these documents are not yet available.
For existing residents who received a PID, the PID relating to their residence contract continues to apply. The operator must continue to keep the PID updated and advise those residents and the Department of Housing and Public Works (DHPW) of material inaccuracies or changes in the usual way. However, the operator will not be entitled to amend the PID in a way that materially affects the interests of a resident (except under an approved closure plan or approved redevelopment plan – see below).
Residence Contract
Section 45 of the RV Act will be amended to require additional information be included in the residence contract.
It is also proposed to allow Regulations to be made in the future that prescribe mandatory or prohibited terms for residence contracts. This will give the Executive arm of Government (as opposed to Parliament) very broad power to impose new obligations and restrictions on operators, which may have far-reaching impacts on the industry. This is a serious concern.
Village Comparison Document
The purpose of a Village Comparison Document is to give general information about a retirement village to prospective residents. Both existing and new villages must have a Village Comparison Document.
The operator must:
- publish the Village Comparison Document on the village’s website so that the document, or a link to it, appears prominently on each page which contains, or has a link to, marketing material for the village (it will now be mandatory for the operator to maintain a website for the village, though an operator of multiple villages may maintain a website that relates to more than one village);
- ensure that any promotional material for the village given to a person, other than as part of a general distribution (e.g. mail-out), is accompanied by a copy of the Village Comparison Document; and
- give a copy of the Village Comparison Document to a prospective resident within seven days of request.
If the operator becomes aware of a material change to any information in the Village Comparison Document, the operator must amend the document immediately and notify DHPW within 28 days.
Prospective Costs Document
The purpose of a Prospective Costs Document is to give a prospective resident a summary of the estimated costs of moving into, living in and leaving the village. It is expected that this information must be personalised for each prospective resident.
If a prospective resident asks an operator for a Prospective Costs Document, the operator must comply within seven days after receiving from the prospective resident any information the operator needs to complete the document.
Condition Reports
The Bill provides for a Condition Report in respect of the unit to be prepared, both before the resident starts occupying the unit and within 14 days after termination of the residence contract.
Before the resident commences occupation, the operator must inspect the unit and complete the report in the presence of the resident or their representative (unless the resident otherwise consents in writing).
Upon both entry and exit, the resident must mark a copy of the report to show any parts with which the resident disagrees. The Bill does not specify what is to happen in the case of disagreement. Presumably, a retirement village dispute arises, to be dealt with under the RV Act.
The operator must keep the reports for at least two years after termination of the residence contract.
Pre-Contractual Waiting Period
Operators will need to wait at least 21 days before entering into a residence contract with a person, after giving the person a copy of:
- the residence contract;
- the Village Comparison Document;
- a Prospective Costs Document;
- any by-laws; and
- any other document prescribed by Regulation.
If, after giving these documents to a person, there is a change (other than a minor change) in any of the information contained in the documents, the operator must give the person details of the change and the 21 day waiting period then restarts. This could interfere with operators’ ability to enter into residence contracts around the end of each financial year, when new budgets are being implemented.
With an increasing focus on care provided in retirement village settings, this change could disadvantage ailing or frail persons who require prompt access to a village. Fortunately, a prospective resident can waive the pre-contractual waiting period by giving the operator an approved waiver document. Any waiver requires legal advice from a Queensland lawyer.
Note that this new requirement does not replace the existing 14 day cooling-off period, which will also continue to apply.
Access to Operational Documents
The Bill significantly expands the scope of documents that a resident (and now also a prospective resident) may obtain from an operator. Previously, this entitlement only applied to a resident’s own residence contract and PID. Under the Bill, the entitlement would extend to any document prescribed by Regulation relating to the operation of the village. However, the operator must not release any personal information about another person.
False and Misleading Information
Currently, operators are prohibited from giving a resident or DHPW a document containing information the operator knows is false or misleading. This obligation will be expanded to any information (whether contained in a document or not) and to prospective residents.
Exit Entitlements
It is proposed that operators must pay former residents their exit entitlements no later than 18 months after termination of the residence contract, even if the right to reside has not been resold. However, an operator may apply to QCAT for an extension of this timeframe on hardship grounds (QCAT will also consider any hardship the former resident is likely to suffer). QCAT may also order that the exit entitlement be paid in instalments.
Note that these provisions will apply to both existing and new residence contracts. However, if a residence contract has already been terminated when the changes to the RV Act commence, the 18 month timeframe for that contract will instead run from the date those changes commence.
The Bill rectifies a difficulty that can arise where the former resident has died and the identity of their lawful personal representatives is unclear. Under the Bill, operators will not be obliged to pay the exit entitlement until 14 days after the operator is shown probate of the deceased resident’s Will or Letters of Administration.
Village Funds
General Services Charges Fund
Operators will need to establish and keep a fund for general services, in a separate account (based on previous Tribunal decisions, this should be interpreted as a separate bank account, not simply a separate ledger). The operator must not use the fund for any purpose other than providing general services.
Operators will be prohibited from including in the general services charge any legal costs incurred by the operator in relation to a “retirement village issue” (which includes a retirement village dispute).
Currently, operators must pay the general services charge for accommodation units that have not been occupied or for which there is no residence contract in force. For this purpose, the Bill seeks to define “accommodation unit” to include units that are under construction or being renovated. No clarification is provided as to when a unit is considered to be “under construction”. Conceivably, this could include early construction works, such as laying foundations. This is potentially problematic (particularly in the case of multi-storey villages) and could have a very significant financial impact on retirement village developers.
The Bill clarifies that the CPI limit on annual increases in the “total general services charge” is to be worked out using the March CPI figures.
Maintenance Reserve Fund (MRF)
Under the Bill, the MRF contribution will no longer form part of the general services charge. Interestingly, this has the effect of liberating former residents’ continuing liability for MRF contributions from the 90 day and 9 month caps under Section 104 of the RV Act. The Government does not appear to have taken this into account.
The MRF budget process will be more restrictive. Currently, the operator is obliged to use its best endeavours to implement the quantity surveyor’s recommendations, in the context of any circumstances that were apparently not considered by the quantity surveyor. Under the Bill, this discretion will be removed. Instead, the operator will be required to adopt an MRF budget that is consistent with and implements any recommendations in the quantity surveyor’s report, except to the extent that any part of the budget has been agreed by special resolution of the residents.
Any resident will be able to request a copy of the draft MRF budget, not merely the residents committee. Failure to comply will now attract a pecuniary penalty.
Reinstatement Work and Renovation Work
Under the Bill, former residents will be responsible for “reinstatement work” when ceasing occupation of their unit at the end of their residency. However, this will no longer mean reinstating the unit to a marketable condition. Instead, reinstatement work will be limited to leaving the unit in its condition upon entry, apart from:
- fair wear and tear; and
- renovations and other changes carried out with the agreement of the parties.
If the former resident does not comply with this obligation, the operator may carry out the reinstatement work and claim the cost from the former resident.
The Bill also introduces a new concept of “renovation work”, which simply means replacements or repairs other than reinstatement work.
The cost of renovation work must be paid by the parties in the same proportion as they are to share any capital gain on resale of the right to reside.
Before starting renovation work, the operator must agree with the former resident on a date by which the renovation work will be completed. If the parties cannot agree on a date, a retirement village dispute arises.
The operator must ensure that the renovation work is completed by the agreed date. There is no specific provision in the Bill for the agreed date to be extended where the renovation work is delayed due to reasons beyond the operator’s control. However, provision for such an extension could be incorporated in the parties’ agreement regarding the date for completion. Also, the Bill does not appear to prevent the parties from agreeing on the date for completion of the renovation work in the residence contract itself, rather than after termination of the residence contract. Adopting this approach could expedite the renovation process and avoid procedural delays.
Interestingly, the Bill does not contain any provisions requiring the operator to obtain the former resident’s agreement to the nature and extent of the renovation work the operator wishes to undertake. Accordingly, it appears that the scope of renovation work is only limited by the reference to “replacements or repairs” in the definition. These terms suggest that upgrading fixtures and fittings, which goes beyond mere replacement with similar or equivalent items, would not be renovation work and would need to be funded by the operator (as is currently the case).
Under the Bill, if a new resident wishes to alter the unit (e.g. install a pergola or external blind), the parties will not be able to agree that the resident must remove the alteration at the resident’s cost at the end of their occupancy. While the Bill is not entirely clear, it appears that the operator would need to bear the cost of removal, as it is specifically excluded from the definition of reinstatement work, and is unlikely to constitute “replacements or repairs” for the purpose of the definition of renovation work. This is a bad policy outcome for residents, as it may discourage operators from allowing residents to make alterations to their unit for the residents’ comfort and enjoyment, even where the residents are prepared to remove the alterations at their own cost at the end of their occupancy.
These new reinstatement and renovation provisions will only apply to residence contracts entered into after the changes to the RV Act commence. The existing provisions regarding reinstatement work will continue to apply to existing residence contracts.
Behavioural Matters
The Bill proposes to introduce new rights and obligations for operators, residents and others in relation to behavioural matters. Most notably:
- operators must not unreasonably interfere with or allow interference with the reasonable peace, comfort or privacy of a resident. However, operators are not prevented from entering a resident’s unit on certain grounds (e.g. risk to health or safety, urgent repairs, emergency, authorisation under law);
- operators must take reasonable steps to ensure that a resident or resident’s guest does not interfere with the reasonable peace, comfort or privacy of another resident. This will inevitably involve operators in disputes between residents, potentially to the extent of initiating Court or Tribunal proceedings. Operators will not be able to pass on any legal costs they incur in relation to such disputes as part of the general services charge (see above);
- operators will be obliged to provide a complete response to written complaints, proposals or questions about the operation of the village from a resident, former resident or their representative (being a resident advocacy group), within 21 days; and
- certain behavioural obligations will also be imposed on residents, including towards other residents and workers at the village. For example, residents must respect the rights of the operator and its representatives to work in an environment free from harassment and intimidation.
Sale or Transfer of Retirement Villages
The Bill introduces new provisions regarding the transfer of control of a village’s operation from one person (Seller) to another (Buyer).
The Seller must give DHPW notice of the proposed transfer and a proposed “transition plan” for approval by DHPW. DHPW may only approve the transition plan if satisfied that it provides for a clear, orderly and fair process for transitioning control of the village’s operation. Beyond that, there are no specified criteria to which DHPW must have regard in making their decision, nor any prescribed timeframe for their response.
To assist their deliberations, DHPW may give a copy of the transition plan to any person they reasonably consider has an interest in the proposed transition and invite submissions. This could include residents of the village and employees. Further, if DHPW decides to approve the transition plan, they must notify each resident of the village of the resident’s right to have the decision reviewed by QCAT.
Typically, parties to a business sale wish to maintain confidentiality as long as reasonably possible, to ensure that business operations are not disrupted by the proposed sale and that the value of the business is not thereby diminished mid-transaction. These proposed provisions undermine this commercial imperative.
Alarmingly, even if DHPW has approved a transition plan, they may, on application by the operator or on DHPW’s own initiative at any time, direct the Seller to revise the approved transition plan. This has very serious implications for sales of retirement villages, as it will undermine the certainty required by the parties to such transactions and interfere with ordinary commerce.
When transferring control of the village’s operation, the Seller and Buyer must comply with an approved transition plan and must notify DHPW how the plan is being implemented upon request. The Buyer must notify each resident within 14 days after the transfer occurs.
If the parties do not proceed with the transfer, the Seller must notify DHPW. Pecuniary penalties apply for failing to do so.
The Bill also inserts a new provision expressly stating that, from the date the transfer takes effect, the Buyer obtains the benefits, and is subject to the obligations, of the Seller in relation to the residence contracts.
Redevelopment of Retirement Villages
The Bill inserts new provisions regarding the redevelopment of retirement villages. Redevelopments have been a vexed issue for operators with ageing premises, as they typically require unanimous cooperation of the affected residents.
The new provisions are similar to those relating to transfers of retirement villages, in that:
- the operator must give each resident a proposed “redevelopment plan” for approval and a “residents meeting notice”;
- before the operator may redevelop, the redevelopment plan must be approved either by a special resolution of residents or, failing that, DHPW;
- DHPW may only approve the redevelopment plan if it provides for a clear, orderly and fair process for the redevelopment;
- if DHPW approves the redevelopment plan, residents may apply to QCAT to review the decision;
- DHPW may direct an operator to revise an approved redevelopment plan at any time (even if it was approved by a special resolution of residents);
- the operator must comply with an approved redevelopment plan when carrying out the redevelopment and must notify DHPW how the plan is being implemented upon request; and
- if the operator decides not to proceed with the redevelopment, the operator must notify DHPW and each resident. Pecuniary penalties apply for failing to do so.
The definition of “redevelopment” for the purpose of these provisions is very broad and includes:
- construction of a new unit (this has particular implications for staged developments);
- demolition of a unit;
- construction, demolition, expansion or reduction of a building or structure (other than minor works, such as the construction or demolition of a shed);
- expanding or reducing the area of the village (e.g. amalgamating additional land); and
- a change (other than a minor change) to the use of a building or structure within the village.
However, these new provisions do not apply if every resident of the village was given written notice of the redevelopment before becoming a resident, either in their PID or in one of the new documents intended to replace the PID (see above). Accordingly, operators proposing to undertake a “redevelopment” (including construction of a village in stages) should check the PID given to each existing resident to ensure it refers to the proposed redevelopment (disclosure in item 2.12 of the PID may be sufficient for a staged development).
CLOSURE OF RETIREMENT VILLAGES
The Bill inserts new provisions regarding the closure of retirement villages (including temporary closures). These provisions are similar to those relating to transfers of retirement villages and redevelopments, in that:
- the operator must notify the residents and DHPW and give each resident a proposed “closure plan” for approval;
- before the operator may close the village, the closure plan must be approved either by a special resolution of residents or, failing that, DHPW;
- DHPW may only approve the closure plan if it provides for a clear, orderly and fair process for closure of the village;
- if DHPW approves the closure plan, residents may apply to QCAT to review the decision;
- DHPW may direct an operator to revise an approved closure plan at any time (even if it was approved by a special resolution of residents);
- the operator must comply with an approved closure plan when closing the village and must notify DHPW how the plan is being implemented upon request; and
- if the operator decides not to proceed with closure of the village, the operator must notify DHPW and each resident. Pecuniary penalties apply for failing to do so.
Where a residence contract is terminated because the operator is implementing an approved closure plan, the operator must pay the exit entitlement within 14 days after the resale value of the right to reside has been determined.
Appointment of a Manager of a Retirement Village upon Application by DHPW
The Bill proposes more details regarding:
- breaches that entitle DHPW to apply to the District Court for the appointment of a manager of a retirement village;
- reporting by the manager to DHPW;
- potential details of the management order; and
- expenses of the manager.
VALUATIONS
Under the Bill, the first revaluation of the right to reside must occur if there is no resale within three months (as opposed to six months) after termination. However, if a residence contract has already been terminated when the changes to the RV Act commence, the current six month period will continue to apply. The requirement to continue to revalue the right to reside every three months thereafter remains unchanged.
Where the operator is required to pay an exit entitlement at the end of the 18 month “buy-back” period referred to above (despite there being no resale of the right to reside), the operator must obtain a valuation of the right to reside not more than 14 days before the operator is required to pay the exit entitlement (unless the parties have otherwise agreed on the resale value).
The Bill introduces new procedures and requirements for valuing the right to reside, including:
- the valuer must invite the parties to make submissions and the valuer must have regard to those submissions;
- the valuation must be on the basis that the retirement village is operating normally;
- the valuer must have regard to the exit fee and capital gain sharing arrangements applying to the former resident (not to different arrangements that may apply to the next resident of the unit). This appears designed to entrench what should already happen in practice where an operator offers residents a choice of different exit fee/capital gain options and the former resident and new resident have selected different options, i.e. the valuation is worked out on an assumed common basis; and
- the valuer may require the operator to give the valuer information reasonably required by the valuer.
FINANCIAL STATEMENTS
Under the Bill, the quarterly and annual financial statements will need to include income of the general services charges fund (in addition to expenditure, as currently required).
Currently, quarterly financial statements must be given to a resident upon request. The Bill proposes that operators will not be obliged to provide a quarterly financial statement that relates to a quarter earlier than the last two completed financial years.
DISPUTES
Disputes relating to reinstatement work or renovation work will no longer require internal dispute resolution followed by mediation, before a party may apply to QCAT to determine the dispute.
If the operator does not complete renovation work by the date agreed between the parties, the former resident may apply to QCAT for an order that the operator pay the former resident’s exit entitlement.
The grounds on which a resident may apply to QCAT for an order setting aside their residence contract under Section 170 of the RV Act will be expanded. Currently, this only applies where a resident is materially prejudiced by the operator knowingly giving the resident false or misleading information. The Bill proposes that this right will also be available where the operator fails to comply with the 21 day pre-contractual waiting period (see above). This will mean that operators must diligently comply with that requirement. As no time limit is expressed, a resident could make such an application at any time, which could result in an operator having to repay the resident’s entire ingoing contribution, irrespective of how long the resident may have lived at the village.
APPROVED FORMS
The Bill refers to a large number of approved forms to be introduced. These forms are not yet available. The Bill provides that, until an approved form is available, any requirement under the RV Act to use that approved form does not apply.
The new approved forms referred to in the Bill include:
- residence contract;
- Village Comparison Document;
- Prospective Costs Document;
- Condition Report (upon entry);
- Condition Report (upon exit);
- waiver of 21-day pre-contractual waiting period;
- general services charge budget;
- capital replacement fund budget;
- MRF budget;
- quarterly financial statement;
- annual financial statement;
- notice of intention to transfer control of a village’s operation;
- transition plan;
- notice of discontinuation of transition;
- notice to DHPW of intention to close a village;
- residents meeting notice, regarding a proposed village closure;
- closure plan;
- notice of discontinuation of village closure;
- residents meeting notice, regarding a proposed redevelopment;
- redevelopment plan; and
- notice of discontinuation of redevelopment.
ACTION REQUIRED
Retirement village operators should, with their professional advisors’ assistance:
- monitor the progress of the Bill and any further changes before it becomes law; and
- begin preparing to overhaul their template documents and procedures to comply with the proposed amendments.
Clearly, these proposed changes to the RV Act are extensive and will require a significant amount of work by the industry in preparation for their commencement. To assist operators and their consultants, we will be hosting a free event in the near future where we will examine the proposed legislative changes, their ramifications and proposed solutions for operators. Invitations will follow shortly.
